We have a 2nd lien mortgage loan that matured about 6 months ago. Borrower had an opportunity to extend the loan, but refused to put adequate flood insurance in place. The loan has since been charged-off after no response from the borrower. I don't have all the details but it seems the borrower is willing to make payments.

This may be more of a legal question than a compliance one - do we need to issue a new 'workout agreement' with the borrower on this debt, or can the borrower just make payments on the recovery monthly? The balance is less than $10k, 2nd lien, so I do not foresee foreclosure proceedings taking place. Thanks in advance, this is certainly not my area of expertise.

What arrangement you make is really up to the bank. If they are paying the bank under an informal arrangement, then there is not much to do. If they a paying under a formal written agreement, then you would have to decide if that action is excluded from the definition of a refinance under 1026.20(a) to avoid disclosures.

At $100 a month, I am surprised that covers the force placed flood insurance premiums or have they since purchased flood insurance. If you still hold the lien, then flood insurance is still required whether you have charged off the loan or not.