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#215161 - 07/23/04 10:39 PM
Another Flood question
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Diamond Poster
Joined: Aug 2001
Posts: 1,033
Marysville, Ca.
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I have another question. I have received a Standard Flood Insurance Application from the agent. After speaking with the agent he says that the application is what they provide to title for the verification of flood and that by law he can not issue anything else but that. Is this true? If so, what happes if the flood insurance does not get put in place and we have now funded the loan with no flood insurance and are now in violation of the Act. HELP
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Tina A Sweet-Williams
AVP Special Assets
mailto:tsweet@goldcountrynb.com
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#215162 - 07/24/04 10:18 AM
Re: Another Flood question
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10K Club
Joined: Dec 2000
Posts: 21,293
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You don't really get turned down for flood insurance. A copy of the application and evidence of payment (cancelled check or receipt for payment) are acceptable as evidence of insurance at a loan closing.
From the insurance "producers" manual:
C.Effective Date
1.New Policy (other than 2, 3, or 4 below)--
The effective date of a new policy will be 12:01 a.m., local time, on the 30th calendar day after the application date and the presentment of premium. Example: a policy applied for on May 3 will become effective 12:01 a.m., local time, on June 2.) The effective date of coverage is subject to the waiting period rule listed under B.1 or B.2 above.
2.New Policy (in connection with making,
increasing, extending, or renewing a loan, whether conventional or otherwise)--Flood insurance, which is initially purchased in connection with the making, increasing, extending, or renewal of a loan, shall be effective at the time of loan closing, provided that the policy is applied for and the presentment of premium is made at or prior to the loan closing. (Example: presentment of premium and application date--April 3, refinancing--April 3 at 3:00 p.m., policy effective date--April 3 at 3:00
p.m.) This rule applies to all buildings
regardless of flood zone. The waiting period rule listed under B.1 or B.2 above does not apply.
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#215163 - 07/26/04 03:35 PM
Re: Another Flood question
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Diamond Poster
Joined: Aug 2001
Posts: 1,033
Marysville, Ca.
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So should they apply for the flood prior to close of the loan so that when the loan closes they will have flood in place? I realize some borrowers do not want to do that.
_________________________
Tina A Sweet-Williams
AVP Special Assets
mailto:tsweet@goldcountrynb.com
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#215166 - 07/26/04 04:18 PM
Re: Another Flood question
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Platinum Poster
Joined: Apr 2003
Posts: 933
New York State
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Quote:
The latest they can take care of this is at closing, if the agent is there! Otherwise, the law is no insurance, no loan.
I love it, I love it!!!!!!!!!!!!I just had to "discuss" this very issue with a board member who told me that he could have any number of attorneys prove to me that it's OK for the bank to close the loan without the flood insurance. Gotta love my job. 
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#215168 - 07/26/04 04:25 PM
Re: Another Flood question
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Platinum Poster
Joined: Apr 2003
Posts: 933
New York State
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Just that he wasn't going to lose a very, very large commercial account because of a regulatory requirement. Basically, no sound reason. The account was not handled properly by the lender to begin with. The SFHDF was not run until after closing. SURPRISE, in a flood zone.
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#215170 - 07/26/04 04:51 PM
Re: Another Flood question
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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Quote:
who told me that he could have any number of attorneys prove to me that it's OK for the bank to close the loan without the flood insurance.
Can that same board member and attorney show you how to avoid Civil Money Penalties for violating the Law ?
Here are some CMPs handed out in Jan thru Mar 2003 (they just happened to be handy):
Central State Bank, AL $2,000
LaSalle State Bank, IL $3,150
Simmons State Bank, AR $1,500
The Bank of Yellville, AR $1,750
First Bank, MO $17,150
Most of these CMPs were for not requiring sufficient flood insurance coverage when needed and/or not following the flood requirements, such as the determination must be made and insurance (if required) be in place before the loan closes.
Last edited by dpersfull; 07/26/04 04:56 PM.
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#215171 - 07/26/04 05:34 PM
Re: Another Flood question
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Platinum Poster
Joined: Apr 2003
Posts: 933
New York State
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Quote:
Quote:
who told me that he could have any number of attorneys prove to me that it's OK for the bank to close the loan without the flood insurance.
Can that same board member and attorney show you how to avoid Civil Money Penalties for violating the Law ?
Here are some CMPs handed out in Jan thru Mar 2003 (they just happened to be handy):
Central State Bank, AL $2,000
LaSalle State Bank, IL $3,150
Simmons State Bank, AR $1,500
The Bank of Yellville, AR $1,750
First Bank, MO $17,150
Most of these CMPs were for not requiring sufficient flood insurance coverage when needed and/or not following the flood requirements, such as the determination must be made and insurance (if required) be in place before the loan closes.
Yes, I know. Our jobs can be soooo frustrating sometimes. Especially when we are trying to protect the bank and the customer. Thanks for the words of support.
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#215172 - 07/26/04 06:32 PM
Re: Another Flood question
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Diamond Poster
Joined: Aug 2001
Posts: 1,033
Marysville, Ca.
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The note department indicated to me, that we could fund on the flood application as long as we have proof of payment through the estimated HUD1 statement. I disagree, but they are going for it!! When an application is submitted during the close of escrow, isnt there a waiting period, thus we will not be covered during that period, thus, we funded without flood insurance? And the flood insurance, when it arrives, will show a date after the funding date?
_________________________
Tina A Sweet-Williams
AVP Special Assets
mailto:tsweet@goldcountrynb.com
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#215173 - 07/26/04 06:51 PM
Re: Another Flood question
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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Look at page 34 of the Mandatory Purchase of Flood Insurance Guidelines. There is no waiting period in connection with a loan.
The HUD-1 (1A) itemization of the premium is not proof the premium was paid. You must have a policy, binder, declaration page, or a copy of the application with proof the premium was paid.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#215175 - 07/26/04 07:22 PM
Re: Another Flood question
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Power Poster
Joined: May 2002
Posts: 6,259
NW IL
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Quote:
Look at page 34 of the Mandatory Purchase of Flood Insurance Guidelines. There is no waiting period in connection with a loan.
The HUD-1 (1A) itemization of the premium is not proof the premium was paid. You must have a policy, binder, declaration page, or a copy of the application with proof the premium was paid.
Where does it say that the HUD-1 is not proof that the premium was paid? I can't find it in the Mandatory Purchase of Flood Insurance Guidelines (can you point me in the right direction?).
I looked at the Freddie Mac Seller/Servicer guidelines and found this:
46.21: Evidence of flood insurance (04/05/02)
If final evidence of flood insurance is not available at the time of the quality control review, one of the following documents is acceptable:
• Completed and executed NFIP Flood Insurance Application PLUS a copy of the Borrower's premium check or agent's paid receipt
OR
• Completed and executed NFIP Flood Insurance Application PLUS the final HUD-1 form reflecting the flood insurance premium collected at closing
OR
• Completed and executed NFIP General Change Endorsement Form showing the assignment of the current flood insurance policy by the property seller to the Borrower
OR
• Agent-executed NFIP Certification of Proof of Purchase of Flood Insurance
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#215176 - 07/26/04 09:16 PM
Re: Another Flood question
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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I answered 2 questions. Page 34 pertains to the waiting period.
Reflecting the premium on the HUD is not evidence for flood insurance. You have to show proof the premium was collected. Look at the information you supplied;
Completed and executed NFIP Flood Insurance Application PLUS the final HUD-1 form reflecting the flood insurance premium collected at closing
If you have a copy of the application and you are collecting the premium at closing then you have evidence of insurance, but the mere recording of the premium on the HUD without supporting documentation will not suffice as evidence.
I could show the premiume POC/B on the HUD. But without a copy of the application and a receipt for payment I have no evidence of insurance.
Last edited by dpersfull; 07/26/04 09:19 PM.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#215178 - 07/29/04 03:15 PM
Re: Another Flood question
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Platinum Poster
Joined: May 2003
Posts: 832
southeast
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We have a commercial customer that swears that a competing bank will waive the flood insurance requirement. The customer doesn't want to pay $600 a month in flood insurance premiums.
I've already explained that "abundance of caution" doesn't work, and I've already asked whether the premium amount was for the required amount of insurance. Now I'm asked whether having the collateral only through a spreader clause matters. (No, because that means that we have the improved real estate as collateral on another loan, and we should have the appropriate amount of flood insurance because of that other loan. If there's a new loan, indirectly secured by the same improved real estate, the amount of the flood insurance should increase.)
I asked whether it would be possible to only use the land underneath the building (and perhaps inventory) as collateral.
Any other ideas, or do I just say - is the loan worth the CMP to the bank?
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From the end spring new beginnings.
Pliny the Elder
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