During a compliance review for flood insurance, I found a flood insurance policy that had expired. I am unsure of the amount of insurance required. Would it be the replacement cost of the building (per the appraisal), or the loan balance adjusted for the land value? Also, if we do end up forceplacing the insurance at a much greater cost to the borrower, would the borrower still have the option of obtaining their own flood insurance policy at a lower cost to be effective at the expiration date of the bank's policy?

The amount of insurance must be at least the lesser of: 1) the outstanding principal balance of the loan or 2) the maximum amount of coverage available. I would think that, if you force placed the insurance, and the customer subsequently wanted to get insurance at cheaper price after expiration of the bank's policy, great. As long as the property is covered by insurance, I don't think it matters who buys it.