We are in one of the lucky areas that had map revisions. We have several customers now located in flood prone areas that require insurance. We do escrow for insurance. My questions, now that they have the first premium paid we want to require flood insurance escrow for future payments. Do we need to send all the flood notices just like a new loan or is there some other way of handling this? What about ones that already have fire insurance escrowed–do we have to give any kind of escrow notice to add the flood insurance to that.
A Flood Hazard Notice and a 45-day notice should have been provided when you initially notified the borrower of the required insurance. Now that you are escrowing you should provide the initial escrow disclosure required by RESPA. Follow your standard procedures regarding escrow requirements. Does your existing note or escrow agreement address required escrows for additional items such as flood insurance? If not, you may want the borrower to sign an escrow agreement for the flood insurance.
There are several ways to handle disclosures when adding an additional item to an existing account. A big factor in the decision is which option is easiest to accomplish in your system. Oftentimes it is easiest to do a short period statement to end the current escrow year, then give a new initial escrow disclosure that includes all items, including the new one.