Are we required to maintain flood insurance on a nonaccrual charged off loan?

If the bank now owns the property and you want to protect your collateral, I would say it from a safety and soundness perspective, you better.

This has the same argument as what you'd have with a consumer. A property in a 100 year flood plain does not mean that it should flood only once every hundred years. It refers to a flood level with a 1% or greater chance of being equaled or exceeded in any given year. This means that over a typical 30 year mortgage there is a 26% chance that it will flood. Statistically there is only a 1% chance that it would burn. Does the bank have fire coverage, if you own it?

Nonaccrual is a status you have given the loan. I would believe that even if this is not OREO, the bank needs the protection. Yes, it is at a cost you likely won't get back from your borrower any time soon. But I don't recall that as being in the force placed criteria. Correct me if I'm wrong.

OREO is exempt. HOWEVER, if the bank has a properly secured mortgage with a legal balance owed, why would the Act not apply to that loan? I'd be thrilled to learn otherwise, but I am not aware of anything stating a legally existing and collectable mortage of $50,000 with a $0 "ledger" balance is exempt from the Act.

Until you take ownership of the property, or there is no longer any monies owed against the loan, regardless what "ledger" the balance is being tracked on then it would appear you have a designated loan.

If there is insufficient equity to extinguish our second mortgage, the flood insurance has lapsed and the loan is in default (customer refuses to make any additional payments as the property is a rental unit), I understand under the Flood act, a second lienholder is responsible for acquiring flood insurance to cover the first mortgage if there is no flood insurance in effect, as well as our up to the balance of own second mortgage, subject to the limit of $250,000. Since we do not intend to foreclose, if we release the mortgage, does this absolve us of any continuing responsibilities under the Act?

If you release the mortgage, you no longer have a loan secured by property in a SFHA.