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Mortgage Impairment​ Policy

Question: 
The bank has a mortgage impairment​ policy that states the lender is covered in the event of a loss due to flood​ damage​ in the amount equal to the outstanding loan amount or the limits imposed by​ the flood regulation, whichever is less. Is this type of coverage​ sufficient to serve as a "force placement of flood insurance" in the event a borrower allows their flood policy to lapse and they have not responded to​ the banks request for a new policy? In the regulation it reads we have to​ force place on behalf of the borrower...the borrower is not covered in this case, only the outstanding loan amount is. I am interested in your thoughts. Also, we do not charge the borrower for any force place coverage in this situation.
Answer: 

by Randy Carey
The regulations require that force placed flood insurance be written and name the borrower as the insured party. The Bank can be an additional insured party or listed as the mortgagee. A typical mortgage impairment policy will not suffice as force placed flood insurance.

Answer: 

by John Burnett
When a lender fails to require that the borrower obtain or maintain flood insurance, the lender enables the borrower to avoid complying with government requirements to either refrain from putting up vulnerable buildings in designated flood hazard areas or take on the cost of insurance against flood losses.

First published on 12/12/2015

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