Int Q&A – Escrow 6 – If a borrower obtains a second mortgage loan for a property located in an SFHA, and…the first lienholder does not have sufficient flood insurance… does the junior lienholder have to escrow…?

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Q:  Escrow 6 – If a borrower obtains a second mortgage loan for a property located in an SFHA, and it is determined that the first lienholder does not have sufficient flood insurance coverage for both liens and is not currently escrowing for flood insurance, does the junior lienholder have to escrow for the additional amount of flood insurance coverage?
 
A:   Under the Regulation, for a closed-end second mortgage loan, junior lienholders are not required to escrow for flood insurance as long as the borrower has obtained flood insurance coverage that meets the mandatory purchase requirement. Thus, the junior lender or its servicer must ensure that adequate flood insurance is in place. See Q&A Other Security Interests 4 for junior lienholder requirements. Q&A Other Security Interests 4 explains the requirements for junior lienholders. If adequate flood insurance has not been obtained by the first lienholder and insurance must be purchased in connection with the second mortgage loan to meet the mandatory purchase requirement, the junior lender or its servicer would need to escrow the insurance obtained in connection with the second mortgage loan. However, the escrow requirements do not apply to a junior lien that is a home equity line of credit (HELOC) since HELOCs have a separate escrow exception under the Act and Regulation.
 
 
ADDITIONAL INFORMATION:
This Q&A was included in the Interagency Questions and Answers Regarding Flood Insurance, which were issued on 05/11/2022.  They were published in the Federal Register on 05/31/2022 and may be found here:  https://www.federalregister.gov/documents/2022/05/31/2022-10414/loans-in-areas-having-special-flood-hazards-interagency-questions-and-answers-regarding-flood
 

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