Q: When force placing flood insurance, is a bank permitted to force place the insurance before expiration of the borrower’s 45-day time frame to obtain insurance?
A: The FDPA provides that a lender or its servicer must notify a borrower if it determines that the flood insurance coverage on the improved real estate or mobile home serving as collateral for the borrower’s loan has expired or is less than the amount required for that particular property (42 USC 4012a(e). The notice must inform the borrower of the need to purchase flood insurance. If the borrower fails to purchase flood insurance within 45 days after the lender’s notification, the lender or servicer must purchase flood insurance on behalf of the borrower and may charge the borrower for the cost of the premiums and fees incurred by the lender or servicer.
The Biggert-Waters Act amends the FDPA to:
1). Provide that the premiums and fees that a lender or servicer may charge the borrower include premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide sufficient coverage amount;
2). Require the lender or servicer, within 30 days of receiving a confirmation of a borrower’s existing flood insurance coverage, to terminate any force-placed insurance and refund to the borrower all force-placed insurance premiums and any related fees paid for by the borrower during any period of overlap between the borrower’s policy and the force-placed policy; and,
3). Require a lender or servicer to accept as confirmation of a borrower’s existing flood insurance policy a declarations page that includes the existing flood insurance policy number and the identity and contact information for the insurance company or agent
It is the agency’s position that these provisions of the Biggert-Waters Act became effective on July 6, 2012.
– This Q&A was included in the materials from the FDIC New York Region Regulatory Teleconference: “Flood Insurance – Flood Insurance Compliance and an Examiner’s Perspective” which took place on December 3, 2012. These materials may be found here: https://www.fdic.gov/news/conferences/NY/2012-12-03.html