We have a mortgage set to close on the 29th of June. The current homeowner filed for a LOMA, and received information from the City stating the dwelling is above the BFE and outside of the SFHA however never completed the process with FEMA, so when the flood cert was requested it stated that it is within a flood zone. Now the borrower who is trying to obtain the mortgage with us doesn't want to pay for flood insurance since there is a LOMA (although not complete), and claims we are simply taking their money. Even though they would receive a refund within 6-8 weeks IF the LOMA is approved through FEMA. Is it possible for the Bank to pay the flood covered, to close the loan and then when it's refunded the bank keep the money?

This scenario was presented by CCO, due to the potential borrower being our highest valued commercial customer, and fears they will lose the relationship if we don't make an exception (one that I don't know is legal). My thought is, if we have a good relationship with the borrower, then they should understand our explanation and do what is necessary to file the LOMA, and eventually get their refund.

Thoughts? Is there anything I'm missing, or possibly a different resolution?

Is it possible for the Bank to pay the flood covered, to close the loan and then when it's refunded the bank keep the money?

That is called forced placed insurance. You cannot force place insurance in order to make the loan. Where is the customer going to go - no other bank is going to do this for them. This is a borrower problem and not the bank's.

claims we are simply taking their money. . . . . . due to the potential borrower being our highest valued commercial customer

Any customer that refuses to do what is required by law/regulation or asks the bank to violate the regulation is not a valued customer IMO. And yes, if they are refusing to purchase the flood insurance and still expects the bank to close the loan they are asking the bank to violate the law. And any member of management that condones it is in violation of their fiduciary responsibilities.

We waive flood insurance for no one. Regardless of the relationship.

It's also seems that the problem is of the customer's making here. It was the borrower who failed to follow up on the process of obtaining a LOMA. That's called "shooting yourself in the foot" in some parts.