Flood FAQs #56 – Which requirements for escrow accounts apply to properties adequately covered by RCBAPs?

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Q:  Which requirements for escrow accounts apply to properties adequately covered by RCBAPs?
 
A:   RCBAPs (Residential Condominium Building Association Policies) are policies purchased by the condominium association on behalf of itself and the individual unit owners in the condominium. A portion of the periodic dues paid to the association by the condominium owners applies to the premiums on the policy. When a lender makes, increases, renews, or extends a loan secured by a condominium unit that is adequately covered by an RCBAP and dues to the condominium association apply to the RCBAP premiums, an escrow account is not required. However, if the RCBAP coverage is inadequate and the unit is also covered by a dwelling form policy, premiums for the dwelling form policy would need to be escrowed if the lender requires escrow for other purposes, such as hazard insurance or taxes. Lenders should exercise due diligence with respect to continuing compliance with the insurance requirements on the part of the condominium association.
 
 
 
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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