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#2269802 - 04/28/22 07:38 PM
Flood Insurance Timeline
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Junior Member
Joined: Aug 2016
Posts: 25
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This may seem like a Flood 101 question, but I'm a new Compliance Officer with a strong ops background, and not a lot of lending experience.
We have an internal discussion right now between a lender and our loan admin manager. We have a borrower that purchased flood insurance, but it was not a sufficient amount. The insurance was in place when the borrower went to the title company to close. When our internal loan admin got back all of documentation to fund the loan, she caught it was the wrong amount. The lender contacted the borrower, the correct amount was obtained, and then the loan was funded.
The million dollar question(s)... Was this a flood violation? By my understanding regulation stipulates insurance must be in place by loan closing. Is closing when the docs are signed or when the loan is funded? Nobody here can agree, so thought I'd get some other expert feedback. Thanks for the help!
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#2269804 - 04/28/22 08:07 PM
Re: Flood Insurance Timeline
BankLady011
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Closing is when the documents are signed unless your state law stipulates differently.
The million dollar question(s)... Was this a flood violation? - Yes.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2269805 - 04/28/22 08:15 PM
Re: Flood Insurance Timeline
Dan Persfull
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Junior Member
Joined: Aug 2016
Posts: 25
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That's what I thought.
Thanks!
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#2269994 - 05/03/22 06:53 PM
Re: Flood Insurance Timeline
BankLady011
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10K Club
Joined: Jul 2001
Posts: 83,371
Galveston, TX
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Loan Exception: If the initial purchase of new, additional, or increased flood insurance coverage is in connection with making, increasing, extending, or renewing a loan secured by the insured property (for example, a mortgage loan) – and if the NFIP receives the Application Form or endorsement request and full amount due within specified timeframes as noted in Table 10 – then no waiting period applies and coverage becomes effective as of the time of the loan closing.
Anything else, such as a policy not effective until the funding date, requires a 30-day wait period. Even if the insurance agent orders the policy without a 30 day wait period, this would be uncovered in the event of a flood within the first 30 days and coverage would be denied.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2270004 - 05/03/22 08:29 PM
Re: Flood Insurance Timeline
BankLady011
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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If the loan closed on the 5th but doesn't fund until the 9th and if the flood insurance policy was not effective as of the 5th then you closed a designated loan without flood insurance being in place and it would be a violation.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#2270011 - 05/03/22 08:56 PM
Re: Flood Insurance Timeline
BankLady011
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10K Club
Joined: Jul 2001
Posts: 83,371
Galveston, TX
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Loan consummation is a State law issue and has nothing to do when a lender might fund a loan. When people refer to closing, they are referring to consummation. At which point the loan is signed sealed and delivered. Who really cares when you disburse the funds.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2270019 - 05/04/22 01:11 PM
Re: Flood Insurance Timeline
BankLady011
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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To accommodate borrowers schedules, we have often had one borrower sign days/week before the second borrower signs.
I would opine (and again based on state law) that the transaction is not closed (consummated) until all required signers have signed the legal agreement. So in this case I think you would be within the regulation as long as the flood policy's effective date was on or before the date of the last signature on the legal agreement. But IMHO the funding date should be taken out of the equation.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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