Flood FAQs #55 – Will escrow-type accounts for commercial loans, secured by multi-family residential buildings, trigger the escrow requirement for flood insurance premiums?

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Q:  Will escrow-type accounts for commercial loans, secured by multi-family residential buildings, trigger the escrow requirement for flood insurance premiums?
 
A:   It depends. Escrow-type accounts established in connection with the underlying agreement between the buyer and seller, or that relate to the commercial venture itself, such as “interest reserve accounts,” “compensating balance accounts,” “marketing accounts,” and similar accounts are not the type of accounts that constitute escrow accounts for the purpose of the Regulation. However, escrow accounts established for the protection of the property, such as escrows for hazard insurance premiums or local real estate taxes, are the types of escrow accounts that trigger the requirement to escrow flood insurance premiums.
 
 
 
ADDITIONAL INFORMATION – This Q&A was included in the “Interagency Questions and Answers Regarding Flood Insurance.”   For ease of collection, this has been obtained from the FDIC’s Compliance Examination Manual – April 2016, which may be found here:  https://fdic.gov/regulations/compliance/manual/5/V-6.1.pdf
 

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