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#2141452 - 08/09/17 09:21 PM Force Place and Escrow
George Offline
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I have tried finding something on the topic, but haven't had any luck. What are the rules regarding force placed flood policies as it pertains to escrow? Or can someone point me in the right direction please?

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Flood Compliance
#2141457 - 08/09/17 09:57 PM Re: Force Place and Escrow George
rlcarey Online
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rlcarey
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Galveston, TX
Not sure what you mean. The customer has an escrow account and cancelled their insurance? You would just substitute the force placed premiums for the old insurance premiums and re-analyze.
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#2141583 - 08/10/17 05:59 PM Re: Force Place and Escrow George
George Offline
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My apologies, I didn't specify...in situations where escrow is currently not set up for the loan. Do we set up escrow and perform an analysis?

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#2141586 - 08/10/17 06:10 PM Re: Force Place and Escrow George
David Dickinson Offline
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David Dickinson
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Central City, NE
I think it's a great idea to start an escrow for borrower in which you force place. Why let them do it to you a second time. So, yes, do an analysis and set up the escrow. You'll follow RESPA's requirements for the starting balance, monthly inflows, annual analysis, etc. If you need more info about this, I've got a webinar on how to set them up and conduct the annual analysis, disclosures, etc.
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#2141613 - 08/10/17 07:57 PM Re: Force Place and Escrow George
George Offline
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Thank you, David, I appreciate it sir! Can you provide a link to that webinar? I am going to talk to my "higher ups" about starting this practice, but want to have a clear understanding of how to go about it before I do.

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#2176177 - 05/01/18 07:23 PM Re: Force Place and Escrow George
MusicCityCRCM Offline
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Reviving this thread... we had a map revision for a property last year, had to force place, but did not set up an escrow account. Would this be a regulatory requirement or just best practice?

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#2176191 - 05/01/18 08:11 PM Re: Force Place and Escrow George
rlcarey Online
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rlcarey
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Galveston, TX
Are you otherwise exempt from flood escrows?
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#2176193 - 05/01/18 08:16 PM Re: Force Place and Escrow George
MusicCityCRCM Offline
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We are not exempt. Taxes and homeowner's insurance were escrowed at account opening, but flood insurance which was later force placed was not added.

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#2176195 - 05/01/18 08:24 PM Re: Force Place and Escrow George
David Dickinson Offline
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Central City, NE
If you add force placed insurance to an existing loan, you are increasing the loan amount (according to the FDIC - although they have never officially announced this). You must do ALL of flood requirements, just like a new loan:
SFHDF (you might be able to rely upon a previous determination);
New Notice;
Evaluate the amount of insurance (the loan balance increases, so you'll need a higher amount than before);
Escrow.
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#2176204 - 05/01/18 08:37 PM Re: Force Place and Escrow George
MusicCityCRCM Offline
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So in this example , a loan was made for a property not originally in a flood zone, but there is a map revision putting the property in a flood zone and thus requiring insurance, at that point we would need to add the flood insurance costs to the escrow account regardless of whether we force place or not, correct???

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#2176209 - 05/01/18 08:47 PM Re: Force Place and Escrow George
rlcarey Online
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rlcarey
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Galveston, TX
Yes
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#2176215 - 05/01/18 08:55 PM Re: Force Place and Escrow George
MusicCityCRCM Offline
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Thank you.

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#2190629 - 08/25/18 02:59 PM Re: Force Place and Escrow George
Audit101 Offline
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If you add force placed insurance to an existing loan, you are increasing the loan amount (according to the FDIC - although they have never officially announced this). You must do ALL of flood requirements, just like a new loan:
SFHDF (you might be able to rely upon a previous determination);
New Notice;
Evaluate the amount of insurance (the loan balance increases, so you'll need a higher amount than before);
Escrow.
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David Dickinson
http://www.bankerscompliance.com

I just asked this question to my audit manager yesterday. If we add force placed insurance to an existing loan, would that be an increase to the loan ; therefore, be a I.R.E triggering event? So we have to conduct a new determination or rely on on old determination if it's within 7 years, send out new Notice to the borrower and evaluate the amount of insurance required. Is this correct?

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#2190634 - 08/27/18 11:00 AM Re: Force Place and Escrow George
rlcarey Online
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Galveston, TX
That about sums it up. You would be increasing the principal balance of the loan, which is a trigger.
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#2190638 - 08/27/18 12:54 PM Re: Force Place and Escrow George
HallieK Offline
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Oklahoma
On May 22, 2017, the Board of Governors, FDIC and the OCC issued a statement to the ABA that stated the following: "If the institution's loan contract with the borrower includes a provision permitting the lender or servicer to advance funds to pay for flood insurance premiums and fees as additional debt to be secured by the building or mobile home, such an advance would be considered part of the loan. As such, the addition of the flood insurance premiums and fees to the loan balance is not considered an "increase" in the loan amount, and thus would not be considered a triggering event. Consequently, the notice and escrow requirements that may result from a triggering event would not apply. "

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#2190642 - 08/27/18 12:58 PM Re: Force Place and Escrow George
rlcarey Online
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rlcarey
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Interesting - where is it found?
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#2190646 - 08/27/18 01:14 PM Re: Force Place and Escrow George
HallieK Offline
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Oklahoma
This was a joint issuance on May 22, 2017, addressed to Virginia O'Neil, Senior Vice President, Center for Regulatory Compliance, American Bankers Association. I was able to locate it just now, on the ABA's website by searching by May 22, 2017, scrolling down and click on "Flood Insurance" then on "The Basics", scrolling down to Guidance/FAQ. It is the fifth item listed.

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#2190648 - 08/27/18 01:24 PM Re: Force Place and Escrow George
rlcarey Online
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rlcarey
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Galveston, TX
It's nice that the regulators would issue such a letter to the ABA and then the ABA places it on their secured website. Nothing like keeping the industry informed. I remember now talking about this last year. Still nothing else from the regulators.
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#2190649 - 08/27/18 01:59 PM Re: Force Place and Escrow George
Adam Witmer Offline
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That letter does say that "the agencies plan to issue written guidance on this issue." Nearly a year an a half later, I don't recall seeing such guidance.
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#2190661 - 08/27/18 03:08 PM Re: Force Place and Escrow George
HallieK Offline
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HallieK
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Oklahoma
I have not seen any such guidance, but it did come in handy when the FDIC examiners were insisting that adding force place insurance premium to the loan triggered all the flood requirements. They backed down after I pulled out this letter.

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#2190679 - 08/27/18 04:28 PM Re: Force Place and Escrow George
Auditor Offline
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Thank you for your prompt feedback. In other words, if I understand you correctly, charging the borrower flood insurance premiums and fees would be considered part of the loan, not and "increase" in the loan amount, and thus would not be considered a triggering event and no further action is required as long as the loan contract includes a provision permitting the Bank to advance funds to pay for flood insurance premiums and fees as additional debt to be secured by the building or mobile home, Correct?

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#2190685 - 08/27/18 04:55 PM Re: Force Place and Escrow George
Adam Witmer Offline
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Yes - as long as the contract permits this, the advance is considered part of the original loan and not an "increase" meaning that the notice and escrow requirements don't apply. That said, the amount of insurance needs to cover the new loan balance after the premium and fees are added back in.
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All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2190691 - 08/27/18 05:30 PM Re: Force Place and Escrow George
Auditor Offline
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Understood. Thank you.

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#2190756 - 08/27/18 09:29 PM Re: Force Place and Escrow George
BA13 Offline
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I'd like to tag on to this. We understand about increasing the loan balance for the force placed premium / MIRE event. We have a loan that is not currently escrowed but now with the force placed flood, we need to establish one. The borrower is delinquent and is not going to bring in the beginning escrow balance so can we increase the loan balance for that as well?

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#2190759 - 08/27/18 09:57 PM Re: Force Place and Escrow George
rlcarey Online
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rlcarey
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Galveston, TX
Does your loan contract call for the ability to add funds to the loan balance to fund an escrow account?
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