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Please help me on the timing and notice requirements on the following force placed hazard insurance example:
Day 1 – First notice sent and insurance force placed.
Day 15 – Customer obtains insurance policy.
Day 18 – Bank is notified of customer obtained policy.
I realize that the customer cannot be charged for the 3 day overlap but are we required to send the second notice (30 day) before we can charge the customer on the 46th day for the force placed coverage between the 1st and the 15th? It seems that the second notice would be confusing to the customer.
If the customer has purchased insurance I agree that the second notice would be unnecessary and confusing. I believe you should wait until the 45 day period has expired before charging for any force-placed premiums that were incurred during the 45 day period. Something to consider is that lapse is undefined so there is some debate on when lapse actually occurs. Some deem it at expiration of the policy and some at the expiration of the grace period. The key is if there was overlap in coverage you need to reimburse. Check to see if the borrower was within a grace period when the policy was renewed. If they were, you might consider taking the conservative approach (at least until there is a more decisive answer from regulators on how to handle this) and cancel the policy and reimburse for the amount during the grace period.
This is from the Flood Q&A, p. 35927 from 2009 that gives some discussion on the lapse of a SFIP. But again there is no clear definition from the regulators.
Coverage under FEMA’s SFIP
continues in effect for 30 days from the
date that the SFIP lapses. An SFIP
specifically provides that, if the insurer
decides to cancel or not renew a policy,
it will continue in effect for the benefit
of only the mortgagee for 30 days after
the insurer notifies the mortgagee of the
cancellation or nonrenewal. No
coverage will be provided for a borrower
under the SFIP during this 30-day
period. If a lender monitors a mortgage
loan with respect to the need for flood
insurance coverage, the lender can time
the 45-day period to start with the lapse
of insurance coverage. Assuming
notification is made immediately upon
policy cancellation or nonrenewal,
coverage will continue in place for the
lender/mortgagee’s benefit for 30 days of
the 45-day notice period.
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