HELLLP!

Can't seem to get my head on straight with this issue. Flood guidelines say that you are supposed to force place nsurance "on behalf" of the borrower when the borrower lapses. Yet, lenders are required only to cover the outstanding loan amount.

Is it my understanding that the lender can purchase insurance as the insured without the borrower being a co-insured?

If so, and the purpose of the flood insurance is to help a claimant recover from property damage, how can the lender force place insurance without the borrower as insured and keep the loss proceeds?

I've looked through FEMA's website without luck.

The lender is required to place coverage in the lessor amount of the O/S principal balance, value of the improvements or the maximum available under th NFIP.

You must purchase the insurance on the behalf of the borrower. IOWs the borrower must be protected.

Thanks for responding Dan.

So, what you are saying is the insurance should not have been purchased with the bank as the insured? And, knowing that it has been done this way, a loss payment to the bank should be turned over to the borrower? What if the bank is adding the premium cost to the loan balance and the borrower is delinquent? Isn't the bank entitled to use the loss proceeds to cover the cost of force placing the insurance? Can you point me to something in writing?

http://www.fema.gov/pdf/nfip/mpapp9.pdf

7. Dual Interest
The policy will be written covering the interest of both the mortgagee and the mortgagor. The name of the mortgagor must be included on the Application Form. It is not, however, necessary to include the mortgagee as a named insured because the Mortgage Clause (Article 9.P of the Dwelling Form and Article 8.L of the General Property Form) affords building coverage to any mortgagee named as mortgagee on the Flood Insurance Application. If contents coverage for the mortgagee is desired, the mortgagee should be included as a named insured.