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Are we allowed to make a new loan on a property that has a force place flood insurance policy, or is the borrower required to purchase a flood insurance policy prior to making any new loan?
The flood regulation states an institution shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. I don’t believe there is any language that specifically prohibitions using force placed insurance in the circumstance you mentioned; however, force placed insurance is intended to be used when coverage becomes inadequate. I would be hesitant to veer from this standard and would certainly recommend checking with your examiners to obtain their interpretation before accepting the force-placed policy. And, of course, when obtaining the examiners opinion document it the best you can.
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