Due to recent rain here in Texas, there was flooding in a city that we do business with regularly. One particular loan we had force placed flood insurance on; which a claim was filed. After review, the provider approved the claim and sent us a check. From my understanding, force placed policies cover the bank's interest only, correct? So we would use the check received to payoff our loan, right?

My other issue, the check paid for the coverage amount, which is more than the current loan balance. So, does the customer receive the remaining funds?

I appreciate the help!

You are required to force place flood policies on behalf of the borrower and not the bank. The borrower has to be the insured not the bank. While the bank may be a co-insured, the money belongs to the borrower. What they do with the money is going to be a negotiation between the borrower and the bank before the bank endorses the insurance proceeds check. If I needed the money to repair my house you just made a payment on my loan, your next call would be from my attorney.

You have a problem with your force place flood insurance provider, if this is true.

We just had a couple of force placed flood claims too. The check was made out to both the bank and the borrower. The damage in both cases was minimal so we simple endorsed the check over to the borrower to make the repairs. If the repairs were more significant we would have worked with the borrower to ensure the insurance funds were used to fix our collateral.

I think I just mis-understood the process and how it all worked. What you said makes sense, Randy. Thank you for the clarification. But looking at the policy, it does show us as insured and the borrower as "additionally insured."

If you are both insured, how is the check made payable only to the bank? There is a mismatch here somewhere.

It's not, I overlooked the customer's name on there on the "pay to" line...