Closed a loan that required flood insurance on July 19. We had the application for flood insurance and proof of payment back on July 1. The effective date on the application was July 9, but was to change to the actual closing date because they couldn't bind coverage until the closing date. The insurance company was well informed that closing was July 19.

Yesterday, we received the policy and the effective date for the policy was July 20. Their response was that the CSR became ill and was out, but there is flood insurance in force now and there was no flood on July 19.

This is a first. Should we accept the risk and document the file with insurance company responses or force placed for one day and the bank pays since it was not the customer fault?

I would just note the discrepancy and move on. I would also require an updated documentation in the future. It also means the insurance agent never submitted the initial application to the NFIP or the effective date of the insurance would have been 7/9.

Thank you for the feedback! Appreciate it.

Just as an FYI... we had the same thing happen recently, a clerk at the insurance agency neglected to submit the application timely (it got buried on his desk), only the gap between the closing date and effective date of the flood policy was three weeks. We asked the insurance agency what would have happened if there had been a flood loss during the three week gap and were advised that the agency's Errors and Omissions Policy would have paid for the loss based on the coverage our borrower had applied for.

Will their errors and omissions policy also pay you for the CMP that you are facing for your regulatory violation? How can you have an application and proof of payment if the application has never been submitted to FEMA?

We had a completed application signed by the agent and our borrower along with a receipt for payment in full of the annual premium. A clerk at the insurance agency failed to actually submit the application. Should we also be looking for proof from the agency that the application has actually been submitted to FEMA?

It basically comes down to the insurance agent has no idea what they are doing. They cannot bind an NFIP regardless of the circumstances - only NFIP can do that. Can they submitted the policy application and premium ahead of time - yes. Also, as long as the payment was received within 10 days of closing from the borrower, the day of loan closing should have been the effective date.

I recommend getting proof of payment FROM THE AGENT to FEMA, not from the borrower to the agent. That's when the policy becomes effective and this example illustrates exactly why.

Thank you! We'll make that change to prevent this from happening in the future.

So we have a borrower who is stating they HAVE to close their loan tomorrow, 9/30 the flood policy has 10/1 as the effective date as they say FEMA requires a 1 day wait (not sure about that) anyway, the hazard policy binder (with paid receipts) states they will cover any flood for 24 hours. Is that sufficient proof of flood coverage to close the loan?

And just for the record, the borrower has known they needed flood insurance from day one but ran it to the last minute and now expect us to accommodate them.

The policy must have an effective date as of or before the closing date to be compliant.

There is no waiting period for a policy written as a requirement for a designated loan.

https://nationalfloodinsurance.org/blog/30-day-waiting-period

Accommodating the customer is not a mitigating factor.

, the hazard policy binder (with paid receipts) states they will cover any flood for 24 hours.

You would have to analyze it for compliance with the private flood insurance requirements.

Perfect... thank you