Q: There is a Flood Insurance policy that is reaching its renewal date of 10/01/12. We call on 10/02/12 and find out that the premium has not been received, however the policy has a 30-day grace period before it actually lapses.
Would we send the required borrower notification regarding expired coverage on 10/02/12, or would we wait until after the 30-day grace period and then send the notification and start the process?
Also, is the bank allowed to pay the premium for the customer before the 30-day grace period expires to keep the policy in force rather than force placing insurance?
A: Section 339.7 of the FDIC’s Regulations states that a bank must notify the borrower that the borrower should obtain flood insurance once the bank determines that the building or mobile home and any personal property securing a designated loan is not covered by flood insurance, or is covered by flood insurance in an amount less than required. In this case, the notice would be sent to the borrower on 10/2/12.
Refer to answer 15 regarding the payment of the premium before the 30-day grace period expires.
– 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