In a joint rule, the regulatory agencies implemented provisions of the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA) related to requiring escrow for flood insurance payments and exempting certain detached structures from the mandatory flood insurance purchase requirements.
Lenders with assets of $1 billion or more are required to escrow both flood insurance premiums and fees for loans secured by residential improved real estate or mobile homes and that are made, increased, extended or renewed on or after January 1, 2016. They also must provide borrowers with covered loans outstanding as of January 1, 2016 the option to escrow flood insurance premiums and fees. The final rule includes new and revised sample notice forms and clauses regarding the escrow requirement and option to escrow.
Structures that are part of a residential property but are detached from the primary residence and do not serve as a residence are exempt from the flood insurance requirement. The rule clarified that “serve as a residence” is based upon a good faith determination that the structure is intended for use or is actually used as a residence. However, under HFIAA, lenders may require flood insurance on the detached structures to protect collateral.
The rule also implements provisions of Biggert-Watters Flood Insurance Reform Act of 2012 about the force placement of flood insurance when homeowners’ policies lapse or are insufficient. The force-placement provisions clarify that lenders have authority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date that the borrower’s coverage lapses or becomes insufficient and stipulates the circumstances under which a lender must terminate force-placed flood insurance and refund payments to the borrower.