The flood insurance requirements require you to maintain flood insurance for designated properties. 12 CFR 22.3(a). However, the Flood Disaster Protection Act’s civil money penalty provisions apply only if a financial institution is found to have a “pattern or practice of committing violations” of the flood insurance law and rules. 42 USC 4012a(f).  While we are talking about a single instance here, we do recommend establishing policies and procedures to prevent similar lapses of coverage in the future in order to avoid engaging in a pattern or practice of violating the requirement to maintain ongoing flood insurance. 

For this individual instance, it may be possible to obtain back-dated coverage for the 22 day lapse in flood insurance coverage. One option may be to ask that the borrower attempt to purchase back-dated coverage for the 22 day lapse with the new flood insurance provider. In addition, your institution’s insurance may cover the lapse — many institutions have ongoing all-risk portfolio coverage, also known as portfolio gap coverage, which would cover such temporary lapses in flood insurance.

It also may be possible to force-place insurance for the 22 day lapse. Nothing in the force-placed flood insurance rules would prohibit you from force-placing a policy, which you may do “at any time during the term of a loan” when the property securing the loan “is not covered by flood insurance.” 42 USC 4012a(e). While the National Flood Insurance Program (NFIP)’s Mortgage Portfolio Protection Program (MPPP) does not offer backdated policies, other force-placed insurance carriers may offer backdating. Of course, you would have to provide the force-placed insurance notice and wait 45 days before purchasing the backdated coverage. 42 USC 4012a(e). We believe that you may charge the borrower for “premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount.” 42 USC 4012a(e)(2). Because you have received confirmation that the borrower will have flood insurance going forward, you would have to refund the borrower for any periods during which both the borrower’s policy and the force-placed policy were in effect. 42 USC 4012a(e)(3). However, if you obtain coverage only for the 22 day lapse, we do not believe that a refund would be required, unless the borrower later demonstrates overlapping coverage during the lapsed period.