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I have a borrower who has let his flood insurance policy lapse on 8/9/24 that he had purchased through an outside company. I mailed him his 45 day letter. He only wants enough coverage for the loan amount so he wants us to force place it. I have already forced a policy with our flood insurance vendor in the amount of the principal balance as of 8/9/24. He has a large P&I payment so he will have a reduction in principal by the time his 45 days is up. His principal will be $3,000 – $4000 lower. He has asked if the flood coverage will be even less because he will be reducing the principal balance before the 45 days are up. Are we allowed to have a policy for the higher balance on 8/9/24 until the day he makes a payment (assuming it will be 8/26/24), Then start a new policy that day for the lower balance for a 1 year term? Or do we have to just do one policy on the lapse date 8/9/24 for the principal balance on that date?
If you force place a policy the regulations states, The amount of insurance must be at least equal to the lesser of:
• The outstanding principal balance of the designated loan;
• The maximum limit of coverage available for the particular
type of property under the Act;
• The value of the improvements (building or mobile home)
and any personal property that secures a loan and not the
land itself. [Insurable Value or Replacement Cost Value]You are only required to do it when the policy lapses falling all requirements. If you were to choose to monitor and reduce this for the borrower you will need to be ready to do this for all borrowers or you could have a UDAP/UDAAP issue.
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