Property Foreclosure and Flood Insurance

Question: If we have property that is in foreclosure, and the property is in a high risk flood hazard zone, does the bank have to maintain flood hazard insurance even though the customer isn't paying?

Answer: The first way to think about this is: if one of your offices was in a high risk flood hazard zone, wouldn't you have flood insurance on the branch? Whether still in foreclosure or listed as real estate owned, you shouldn't take the risk of not insuring the property for flood hazards.

The regulation also appears to require the insurance, albeit by the back door. The insurance requirement is triggered by making, increasing, renewing or extending a loan. The loan that triggered the requirement is still there, even though the customer isn't paying. Whether you use force placement or some other procedure, you should maintain the insurance. Remember that one of the largest problems FEMA has identified is the failure to maintain flood insurance.

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 15, 12/04