[MGON315]

Force Placement Flood Question 8 (i.e., When force placement occurs, what is the amount of insurance required to be placed?) indicates the minimum amount of flood insurance required “must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act.

As we know, if a bank has a secondary lien (e.g., home equity or second mortgage loan)and force places coverage only to the extent of its designated loan, its interest would not be protected if a first mortgage claims priority to any insurance proceeds. Therefore, it’s been my understanding that force placement by a second mortgagee requires coordination with the first mortgagee, as well as the insurance provider and insurer on the first mortgage.

This seems to contradict the Agencies’ answer to Question 8 denoted above.

I would like to confirm whether second mortgagees are expected to force place coverage, as applicable, for the 1st as well as the secondary lien. If yes, how might banks accomplish this when they do not have a line of sight to the first lien balance. Our servicer can force place the coverage on the secondary lien, but appear to be putting the onus on us to address any deficiencies related to the first lien.

Thank you and I welcome your perspectives/advice.

Best regards,

Topic

[Kimberly Boatwright, CAMS, CRCM]

The secondary lender is not required to force place insurance for another institution’s loan. They must do their own force placing. The challenge you will have under a FEMA policy is that they will pay the first position lien holder first. So if the policy is not sufficient to cover both loans your institution is at risk. However, if you are using a private policy you will want to verify that it is in the name of your institution and doesn’t have the “pay in order” clause.

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