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#2132456 - 05/31/17 01:44 PM Questioning Reason for 45- day letter
M&M Offline
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I have what I feel like is a dumb question....If we have a lapse in coverage and we send the 45-day letter but force place and charge a customer for flood insurance immediately, as permitted in the 2015 rules, what's the real purpose for the 45-day letter at that point? I'm really struggling with what this accomplishes....

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Flood Compliance
#2132462 - 05/31/17 02:06 PM Re: Questioning Reason for 45- day letter M&M
rlcarey Offline
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It notifies the borrower that they need to provide you flood insurance and that the force placed policy will likely be more expensive. If you have to force place insurance, it basically means the loan is in default.
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#2132665 - 06/01/17 02:41 PM Re: Questioning Reason for 45- day letter M&M
David Dickinson Offline
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Randy's right, but let me add: This rule has evolved. Prior to 2015, you had to give 45 days notice before you charged the borrower. It probably made more sense to you then. You CAN charge immediately now, but you could also wait until 45 days and then charge the borrower. Maybe that procedure would help line these up in your thinking.
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#2132914 - 06/02/17 04:36 PM Re: Questioning Reason for 45- day letter M&M
M&M Offline
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Thanks Dave and Randy! Yes, with the rules prior to 2015, the letter makes a lot more sense. With the rule changes, though, it doesn't make a lot of sense, other than what Randy outlined however, it is confusing to customers when you send that letter saying you'll force place in 45 days but then do it sooner.... Hopefully at some point, they update this piece to better align the requirements. Wishful thinking, I know!

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#2132947 - 06/02/17 05:37 PM Re: Questioning Reason for 45- day letter M&M
rlcarey Offline
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Galveston, TX
it is confusing to customers when you send that letter saying you'll force place in 45 days but then do it sooner

No - you tell them you will charge them at that point of time - not force place then. You might want to re-write your letter.
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#2132963 - 06/02/17 06:33 PM Re: Questioning Reason for 45- day letter M&M
M&M Offline
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But we force place and charge a customer on the day we become aware or at expiration. So, we're still required to send the 45-day letter, but what's it supposed to say at this point?

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#2132971 - 06/02/17 06:56 PM Re: Questioning Reason for 45- day letter M&M
raitchjay Online
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That they have 45 days to purchase insurance of their own. If they provide you a policy in the interim, you have to refund the period of overlap with your FP policy. At least, that's how i understand it.
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#2133006 - 06/03/17 01:22 AM Re: Questioning Reason for 45- day letter M&M
M&M Offline
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Thanks raitchjay. My understanding was that at any point if they purchased insurance, we had to refund the overlap. Anyone care to weigh in on this?

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#2133008 - 06/03/17 11:16 AM Re: Questioning Reason for 45- day letter M&M
rlcarey Offline
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That is a true statement.

(2) Termination of force-placed insurance—(i) Termination and refund. Within 30 days of receipt by a member bank, or a servicer acting on its behalf, of a confirmation of a borrower's existing flood insurance coverage, the member bank or its servicer shall:

(A) Notify the insurance provider to terminate any insurance purchased by the member bank or its servicer under paragraph (g)(1) of this section; and

(B) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the member bank or its servicer under paragraph (g)(1) of this section during any period during which the borrower's flood insurance coverage and the insurance coverage purchased by the member bank or its servicer were each in effect, and any related fees charged to the borrower with respect to the insurance purchased by the member bank or its servicer during such period.
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#2133010 - 06/03/17 03:37 PM Re: Questioning Reason for 45- day letter M&M
M&M Offline
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Thanks Randy. So, I'm back to the fact that since we force place and charge as soon as we become aware of cancellation/expiration/insufficient coverage, and we send the 45-day letter on that day. But...I honestly don't know what we're supposed to say in that letter since nothing different will occur in 45 days.

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#2133072 - 06/05/17 05:02 PM Re: Questioning Reason for 45- day letter M&M
raitchjay Online
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You are force placing on day one, but the borrower still has 45 days to purchase their own policy. If they do, you must refund any of the overlap.
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#2133073 - 06/05/17 05:03 PM Re: Questioning Reason for 45- day letter M&M
raitchjay Online
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So.....your letter is telling them that they have 45 days to purchase flood insurance.
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#2133104 - 06/05/17 07:45 PM Re: Questioning Reason for 45- day letter M&M
RR Joker Offline
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I think I missed a memo. When things changed, I changed to going ahead a FP'ing right away, but not charging their loan until day 46 from issue of the letter. Does anyone have a cite/location to send me that says we can also charge their loan at that time? I know you can charge retroactively, but I didn't think you could actually place the charge until day 46. Maybe this makes sense! crazy
Last edited by RR Joker; 06/05/17 07:48 PM.
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#2133105 - 06/05/17 07:57 PM Re: Questioning Reason for 45- day letter M&M
RR Joker Offline
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I guess this sums it up nicely enough...I must have had some other reason for waiting...perhaps to avoid unnecessary refund hassles...I'm not even sure!

FORCE PLACEMENT OF FLOOD INSURANCE
Under the new rule, financial institutions may charge a
borrower for the cost of force-placed flood insurance and
related fees starting on the date on which flood insurance
coverage lapsed or did not provide the proper amount of
coverage for the property securing the loan.
It is important to emphasize that a lender is not required
to force place flood insurance on the date it learns
insurance is required for a property securing an existing
loan. A regulated lender must send a force-placed notice to the borrower on that date but is permitted to wait
until 45 days after sending the notice before force placing
insurance. When determining whether to force place on
the date a lender learns flood insurance is required, a
lender may consider in the case of a lapsed policy that the
National Flood Insurance Program provides a grace period
during which an expired policy remains in effect for 30 days
after its expiration date as long as the overdue premium is
paid within 30 days. Therefore, a lender’s greatest risk for
a lapsed policy is the period after the grace period expires
and before the lender is required to force place on the 46th
day if the borrower does not comply.
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#2133107 - 06/05/17 08:04 PM Re: Questioning Reason for 45- day letter M&M
rlcarey Offline
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RR - Many banks do not actually charge the borrow until the letter expires, although they force place right way, specifically because 95% of borrowers actually renew their policy and it saves the charging and refunding process that you mentioned.
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#2133108 - 06/05/17 08:08 PM Re: Questioning Reason for 45- day letter M&M
RR Joker Offline
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I think what you've said was the method behind my madness of leaving that be...it just won't sink in my head at the moment that the timing of the charging also changed.
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#2133372 - 06/07/17 05:23 PM Re: Questioning Reason for 45- day letter M&M
Likes to Comply Offline
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Do you think the following notice would cover all the bases and accurately describe our force placement procedures?

Dear Customer:

The above referenced property is located in a Special Flood Hazard Area and therefore, you are required by law to have flood insurance on that property. After reviewing your file, our records indicate that your flood insurance coverage expired on 4/11/17.

The Flood Disaster Protection Act of 1973 requires that flood insurance be purchased and maintained, for the life of the loan, on any loan secured by improved real property (building) and any personal property (contents) located in a Special Flood Hazard Area (SFHA) in a participating community as published by the Federal Emergency Management Agency (FEMA). At a minimum, flood insurance must cover the lowest of: (1) the outstanding principal balance of the loan(s); or (2) the maximum amount of coverage allowed for the type of building under the National Flood Insurance Program; or (3) the full replacement cost value of the building and/or contents securing the loan.

This letter is to inform you that since we have not received evidence of your flood insurance policy renewal, we have obtained a flood insurance policy on your behalf in the amount of $61,000.00, as required by law. The premium for this policy for a term of 12 months in the amount of $971.16 will be charged to the balance of your loan. The cost of this coverage may be significantly higher than the premium that you could obtain if you were to contact your local insurance agent. This policy provides coverage for your structure(s) and any contents for which we have a security interest. It does not protect your personal property or provide you with liability protection of any kind. Due to varying construction costs, the insurance limits provided by the policy may not be sufficient to restore the property in the event of a total loss.

Please obtain and provide us with evidence of adequate flood insurance coverage in an amount of not less than $61,000.00 on the building. When we receive evidence of your policy we will cancel the force placed policy and you will only be charged for any lapse in coverage. This evidence can include a copy of the flood insurance application and proof of payment, or the policy Declarations page. XXX Bank must be listed as Mortgagee on the policy.

Thank you for your prompt attention to this matter. If you have any questions, please do not hesitate to contact me. All inquiries and correspondence should be directed to my attention at XXX Bank, Attn: Mickey Mouse, P.O. Box 1234, Anywhere, TN 11111, by telephone at (XXX) XXX-XXXX or by fax at (XXX) XXX-XXXX.
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#2133564 - 06/08/17 05:49 PM Re: Questioning Reason for 45- day letter M&M
M&M Offline
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I think this letter covers it, but you'd still have to call this a 45-day letter, with nothing happening in 45 days....

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#2133605 - 06/08/17 07:59 PM Re: Questioning Reason for 45- day letter M&M
deltacrcm Offline
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Continuing on this topic, our practice currently is to send the 45 day notice and wait to force place on day 46. What worries me about this is the possibility of a flood during those 45 days with no coverage. I understand that in the event of a policy lapse there is a 30 day grace period provided the premium is paid within those 30 days. So if our bank did not want to force place the day we are made aware of the expiration, would there be an issue with force placing on day 30 if the customer had not yet paid the premium? It seems to be up to the institution, to either force place immediately, or wait the 45 days and charge whenever.

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#2137188 - 07/07/17 12:18 PM Re: Questioning Reason for 45- day letter M&M
M&M Offline
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Midwest
Pulling this post back out for one additional clarification. In the Federal Register from 2015, it's very clear that a lender is now allowed to force place and charge a borrower immediately once they become aware of a lapse, cancellation or insufficient coverage of a flood policy. However, when I look at 339.7, it doesn't have this allowance in there. So, where exactly is this allowance in any final rule that I can point my Loan Ops group to? Is it the Biggert Waters Act, and does that stand alone form the FDIC's flood rules but is still effective (just contradictory)?

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#2137199 - 07/07/17 01:23 PM Re: Questioning Reason for 45- day letter M&M
rlcarey Offline
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§ 339.7 Force placement of flood insurance.

(a)Notice and purchase of coverage. If an FDIC-supervised institution, or a servicer acting on its behalf, determines at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under § 339.3, then the FDIC-supervised institution or its servicer shall notify the borrower that the borrower should obtain flood insurance, at the borrower's expense, in an amount at least equal to the amount required under § 339.3, for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification, then the FDIC-supervised institution or its servicer shall purchase insurance on the borrower's behalf. The FDIC-supervised institution or its servicer may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance, including premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount.
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#2137226 - 07/07/17 03:15 PM Re: Questioning Reason for 45- day letter M&M
M&M Offline
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Midwest
Thanks Randy. I think that language could be interpreted 2 different ways, which is what I'm dealing with. It's being interpreted that you can charge for the coverage back to the date it lapsed/was insufficient, meaning you still have to wait the 45 days to force place and charge but if you do, you can recoup the cost for the first 45 days. However in the Federal Register, the clarification is much more clear that you can force place and charge immediately. So, is there anywhere else this is clarified? If not, do we just use the FR language to stand by the interpretation?

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#2137237 - 07/07/17 03:44 PM Re: Questioning Reason for 45- day letter M&M
rlcarey Offline
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Galveston, TX
Personally, I think it is pretty clear. However. many banks, while they force-place on day one, do not charge the borrower until after the letter expires to avoid all the necessary accounting entries to back everything out when the proof of insurance shows up a day or a week or so later, as is the case most of the time.

"The FDIC-supervised institution ...may charge the borrower... beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount."
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#2215506 - 06/12/19 01:38 PM Re: Questioning Reason for 45- day letter M&M
NoJustNo Offline
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Does the "45-day letter" have to mention anything about 45 days? The example above does not. If I understand correctly, we can force place and charge on day 1 of a lapsed policy. Send a letter, but we have to refund any overlap in coverage during the 45 days. Is that right?

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#2215713 - 06/13/19 09:07 PM Re: Questioning Reason for 45- day letter NoJustNo
hij Offline
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We took the references to "45 days" out of our letter because it doesn't make sense if you are purchasing the force placed policy right away and charging them for it. The letter should instruct them to provide their policy as soon as possible and you will refund any overlap in coverage (not just overlap in the 45 days after you send the letter - any overlap).

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