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#2212997 - 05/07/19 04:48 PM Paying Force Placed Flood
lovinglife Offline
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Joined: Jan 2013
Posts: 27
Midwest
Existing Flood Insurance Expired 03/31/2019, 45-day letter/notice was sent to customer April 2, 2019. Normal procedures are that we initiate the force place insurance on April 2nd, there is a 45-day binder, then on day 46 we pay the forced placed insurance effective the day it lapsed if customer has not got insurance on their own. Senior Management is questioning whether we are covered during that 45 days and why we didn’t pay the force placed insurance on day 1 (April 2, 2019). Just reaching out to see what any other opinions are.

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Flood Compliance
#2212998 - 05/07/19 04:53 PM Re: Paying Force Placed Flood lovinglife
Dan Persfull Offline
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Dan Persfull
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Posts: 46,961
Bloomington, IN
A NFIP policy has a 30 day grace period so you are exposed for 15 days. Also if the policy is not renewed within the 30 day grace period the renewal policy will have a 30 day waiting period before going into effect. So you have an additional 30 days you are not covered.

We force place on day 1.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2215005 - 06/05/19 03:36 PM Re: Paying Force Placed Flood lovinglife
ischaefer Offline
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Joined: May 2018
Posts: 14
Rookie question - does anyone simply pay the premium due and tack that on the loan balance? Dan, is that what you mean when you say you force place on day 1? Or do you apply for/obtain an entirely new policy and let the lapsed one disappear?

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#2215174 - 06/06/19 05:47 PM Re: Paying Force Placed Flood ischaefer
Carolina Blue Offline
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Carolina Blue
Joined: Jul 2005
Posts: 958
Lost in a regulatory fog
Depends on the agreement you have with your insurer. Some may allow you to obtain a policy on day1 and then not bill you until day 46 or some will require you to pay the premium on day1. Either way you cannot charge the premium to the borrower until day 46. Also, be careful about adding the premium to the loan balance as most regulators have deemed that action as a flood trigger event (MIRE), which means create an escrow account (if applicable) and the policy amount would need to cover the increased loan amount (if that's the lowest of the 3 values).

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#2215213 - 06/07/19 12:07 PM Re: Paying Force Placed Flood Carolina Blue
Adam Witmer Offline
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Posts: 2,643
Originally Posted By Carolina Blue
Also, be careful about adding the premium to the loan balance as most regulators have deemed that action as a flood trigger event (MIRE), which means create an escrow account (if applicable) and the policy amount would need to cover the increased loan amount (if that's the lowest of the 3 values).

This is good advice as this topic is a moving target. Just over two years ago, the agencies said they would be issuing formal guidance regarding this, but we have not yet seen it. At that time, the agencies had implied that if your contract (i.e. promissory note) specifically allowed you to add any premium and fees for force placed insurance to the outstanding principal amount of the loan, then this would NOT be a MIRE event. However, if your note did not specifically allow you to add the premium and fees to the loan balance, this would be a MIRE event triggering flood provisions, including a determination, escrow (if applicable) and the flood notice - as well as a need to have insurance in an amount sufficient to cover the new loan amount after the premium/fees are added to the loan balance.
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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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#2215461 - 06/11/19 08:38 PM Re: Paying Force Placed Flood lovinglife
J Van Horn Offline
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Joined: Sep 2012
Posts: 25
Coppell, Texas
Originally Posted By Adam Witmer
if your contract (i.e. promissory note) specifically allowed you to add any premium and fees for force placed insurance to the outstanding principal amount of the loan, then this would NOT be a MIRE event.


A little color commentary on this point:
1) As I understand it, the "not a MIRE event" determination is connected to whether or not the loan documents allow for force-placed premium to be charged back to the borrower (not specifically connected to being allowed to add it to the loan balance);
2) Even though not considered a MIRE event, most lenders have been told that the force-placed premium amount to be added to the loan balance must be included in the minimum required calculation. If OLB (ex: $100M) is minimum required flood coverage amount, then premium (ex: $1M) must be included in coverage amount, meaning force-placed coverage amount must be $101M, using the examples given. Yes, a bit cyclical in practice (and a blazing red siren for insurance professionals...), but doable if you work with your force-placed vendor for a functional solution.
Last edited by J Van Horn; 06/12/19 12:22 AM.
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#2215502 - 06/12/19 01:02 PM Re: Paying Force Placed Flood J Van Horn
Adam Witmer Offline
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Originally Posted By J Van Horn
1) As I understand it, the "not a MIRE event" determination is connected to whether or not the loan documents allow for force-placed premium to be charged back to the borrower (not specifically connected to being allowed to add it to the loan balance);

As I said, there really isn't any formal guidance on this, but the interagency letter to the ABA I referenced does relate it to being added to the loan balance - or rather, technically considers it an "advance" which means the payment of premium and fees would be considered part of the loan.

From the May 22, 2017 letter:
"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..."
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Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2215541 - 06/12/19 03:49 PM Re: Paying Force Placed Flood Carolina Blue
NoJustNo Offline
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Joined: Oct 2013
Posts: 208
Midwest
Originally Posted By Carolina Blue
Depends on the agreement you have with your insurer. Some may allow you to obtain a policy on day1 and then not bill you until day 46 or some will require you to pay the premium on day1. Either way you cannot charge the premium to the borrower until day 46. Also, be careful about adding the premium to the loan balance as most regulators have deemed that action as a flood trigger event (MIRE), which means create an escrow account (if applicable) and the policy amount would need to cover the increased loan amount (if that's the lowest of the 3 values).


I believe you can charge the premium to the borrower starting on day one of the lapse now?

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#2215549 - 06/12/19 04:07 PM Re: Paying Force Placed Flood lovinglife
J Van Horn Offline
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Joined: Sep 2012
Posts: 25
Coppell, Texas
Correct. Agency rules and commentary implementing BWA force-placed lapse date authorization officially cleared this up. In a nutshell, lenders may place coverage as of borrower's coverage lapse date; no need to worry about grace periods - if the borrower gets payment to the carrier inside of the allotted grace period, subsequent policy docs will reflect that this happened.

If the borrower responds with proof of overlapping coverage, refund of premium and related fees must be processed/applied within 30 days of receipt of that proof of coverage.

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#2215551 - 06/12/19 04:11 PM Re: Paying Force Placed Flood lovinglife
NoJustNo Offline
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Joined: Oct 2013
Posts: 208
Midwest
Does anyone have any language for your "45-day letter" that actually makes sense since this change? I feel like we contradict the letter by force placing on day one of the lapse.... I think we need to reword but struggle with how to word.

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#2215556 - 06/12/19 04:28 PM Re: Paying Force Placed Flood lovinglife
J Van Horn Offline
Junior Member
Joined: Sep 2012
Posts: 25
Coppell, Texas
Depends on how your process works for issuing/billing the force-placed coverage.

Most lenders use force-placed master policies which cover the lapse from lapse date, but don't actual generate a certificate of insurance (and thus, a premium bill) until the end** of the 45-day notice cycle. For those lenders, no need to alter language.

Quote:
EDIT: Some lenders charge their customers for all lapses, even if proof of coverage arrives before the 45-day cycle has completed (which is okay, because lapses can/may be covered without actually charging the customer...). So even if a lender would wait 45-days before issuing a force-placed certificate for all lapses, I'd recommend notice language advising the borrower that, as continuous coverage is mandatory, the customer will be responsible for cost to cover all identified lapses


If force-placing and billing immediately, then I agree you would not want to tell the customer they have 45-days to respond. Consider altering the language of the letter? Something to the effect of, "Federal law requires lenders to have coverage in place within 45-days of lapse, and to eliminate risk to bank and borrower of uninsured losses, the bank has ordered coverage as of lapse date."

**This is the famous "backdating" process that isn't really backdating, because the policy exists outside of the individual force-placed certificates... it's really more of a "delayed billing" process. Anyhow...
Last edited by J Van Horn; 06/12/19 05:29 PM. Reason: Clarify charging for lapses found in cycle
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#2215604 - 06/12/19 08:03 PM Re: Paying Force Placed Flood lovinglife
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
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Central City, NE
I'm certain your loan contact also tells the borrower they must maintain insurance without interruption. So the force placement letter isn't contracting the loan contact. Instead, it's informing the customer they must buy insurance or you will. Figuratively, layer the notification letter wording on top of the loan contact.
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#2215609 - 06/12/19 08:34 PM Re: Paying Force Placed Flood lovinglife
NoJustNo Offline
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Joined: Oct 2013
Posts: 208
Midwest
I agree - the letter isn't contradicting the loan contract but it's confusing b/c it gives the customer 45 days to get flood insurance when in reality we force placed it on day one of the lapse.

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