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Flood Insurance Compliance

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Question: 
One of our commercial mortgage customers requires flood insurance. It expired and the bank followed the letter notification process. The customer was in the process of selling the property which was to close within the thirty day flood grace period. The deal fell through forty days after the flood insurance expired, so the customer obtained flood insurance on his own the day before the bank was required to force place the insurance. The agent provided the bank with an insurance flood binder showing the effective date as the day the customer paid the premium. As the customer obtained his own flood insurance, the bank did not force place insurance coverage. A few weeks after we received the binder, we received a copy of the flood policy DEC page showing that the company implemented a thirty day waiting period. I called the agent and the insurance company and was told that because the customer let the policy expire, they could put a thirty day waiting period on the insurance. If the insurance was required by the bank, why would they put a thirty day waiting period on the coverage? Is the bank out of compliance?
Answer: 

If the insurance was required by the bank, why would they put a thirty day waiting period on the coverage?

Because there is a gap in the flood regulations that indicate that if a policy is renewed and the payment is received after the 30 day grace period, the 30-day wait period applies. It is an anomaly that banks occasionally fall into.

Is the bank out of compliance?

Technically, yes.

First published on BankersOnline.com 1/31/11

First published on 01/31/2011

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