Our flood vendor made a mistake on a determination which stated the property was not in a flood zone when in fact it was. Unfortunately the loan closed before we caught the error when reviewing the appraisal. We decided to force place the insurance at bank cost because it wasn't the customers fault. We have notified the flood vendor of their mistake and have asked them to reimburse the flood premium per contract.

The flood vendor has come back and asked us to use their force placed insurance provider because it is less expensive. My question is - can we do that? Any advice would be appreciated! This has never come up before! Thanks for any guidance you can provide!

It is purely a matter of whether the contract addresses this, do you want to let that happen, and whether or not their insurance meets the force placement criteria. So you plan on buying this insurance for the life of the loan???

We are only covering the premium for 1 year until they can see if it can be removed from the flood hazard area with LOMA/LOMR. Again, the flood vendor will be responsible for the amount of the premium - not the bank.

If you don't use their insurance, will they still pony up the premium? Or is them assuming the payment of premium conditioned on you allowing them to use their insurance?

I would be very hesitant to use their insurance. If they didn't get the determination correct, how do you know they can do the insurance correctly?