[kmeade]

We have a loan on property in a flood zone. The loan is escrowed, but the borrower is more than 30 days past due (loan has been delinquent for a while and is probably going to be sent for foreclosure). The flood premium ($4,300.00) is due and the borrower’s escrow is already in the negative. Should we pay the premium from the escrow or charge the premium to the loan (this is allowed in our promissory note/mortgage)? If we pay the premium from the escrow, can the negative escrow balance be added to the principal balance if the loan is charged off during or after the sale of the property?

[rcooper]

I believe you would need to pay it out of the escrow but I’m going to kick this around our office to get some additional opinions.

[rcooper]

We have agreement in our office. You would need to pay it out of the escrow account unless the insurance has been cancelled by the provider for some reason (other than the borrower not paying the premium) or the property is vacant. You should be able to recoup the advance but you should consult with legal counsel before you take any foreclosure action.

Here’s the regulatory cite as support: (1024.17(k)(5))
Timely payment of hazard insurance. (i) In general. Except as provided in paragraph (k)(5)(iii) of this section, with respect to a borrower whose mortgage payment is more than 30 days overdue, but who has established an escrow account for the payment for hazard insurance, as defined in § 1024.31, a servicer may not purchase force-placed insurance, as that term is defined in § 1024.37(a), unless a servicer is unable to disburse funds from the borrower’s escrow account to ensure that the borrower’s hazard insurance premium charges are paid in a timely manner.

(ii) Inability to disburse funds. (A) When inability exists. A servicer is considered unable to disburse funds from a borrower’s escrow account to ensure that the borrower’s hazard insurance premiums are paid in a timely manner only if the servicer has a reasonable basis to believe either that the borrower’s hazard insurance has been canceled (or was not renewed) for reasons other than nonpayment of premium charges or that the borrower’s property is vacant.
(B) When inability does not exist. A servicer shall not be considered unable to disburse funds from the borrower’s escrow account because the escrow account contains insufficient funds for paying hazard insurance premium charges.
(C) Recoupment of advances. If a servicer advances funds to an escrow account to ensure that the borrower’s hazard insurance premium charges are paid in a timely manner, a servicer may seek repayment from the borrower for the funds the servicer advanced, unless otherwise prohibited by applicable law.

And the definition of hazard insurance from 1024.31:
Hazard insurance means insurance on the property securing a mortgage loan that protects the property against loss caused by fire, wind, flood, earthquake, theft, falling objects, freezing, and other similar hazards for which the owner or assignee of such loan requires insurance.

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