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An officer has asked if a borrower uses an assignment of note and mortgage as collateral and the property is located in a flood hazard area, would the bank or the borrower (holding the owner financed note and mortgage) ultimately be responsible for validating and tracking flood insurance?
The regulations require a financial institution to require flood insurance when making, increasing, renewing or extending a loan secured by a building located in a special flood hazard area. It does not appear your loan is secured by a building; it is secured by the note. So, the flood insurance regulations do not apply to the transaction. If the borrower is a financial institution then it should comply with the flood regulations.
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