Our bank just discovered that we have a loan in a flood plain that has an additional structure that is serving as a residence. This loan came over through a merger, and at the time of the merger the previous bank was only tracking a flood requirement on the main residential structure. The loan file does indicate that the additional structure is a "guest house", so it appears that the individual that reviewed the flood file for this had misinterpreted the detached structure exemption portion of the reg. Given that the detached structure is serving as a residence, this exemption clearly does not apply.

Upon discovering that this structure needed to be covered by a flood policy, the customer was notified, and promptly obtained a sufficient policy. My question is, should there be a force placement for the period between when the loan closed, (January 2020) and the effective date of the voluntary policy? Our 3rd party insurance tracking vendor says their system is capable of backdating a force placement, and given that this is a bank error, the bank would assume the cost associated with any force placement.

I am looking for the most practical way to approach this to ensure that the bank is in compliance moving forward and would like to know if force placement of the uninsured period is the correct way to proceed.

Why in the world would you do that. While your insurance vendor might agree to back date an insurance policy and collect the premium, try filing an actual claim for a flood loss during that time and see if their tune changes.

There was an error, you have corrected it. Move on.