Flood Insurance Escrow Required January 1

Earlier this year the federal financial regulatory agencies issued a revised flood insurance rule. According to the revised rule, if flood insurance is required lenders will be required to establish an escrow for flood insurance effective for loans closing on or after 1/1/2016.

There are some exceptions for second liens, condo associations or HOAs that maintain the flood insurance and pay the premiums as a common expense, business purpose loans, home equity lines of credit, and loans of 12 months or less. Note that there is also an exemption to the flood insurance escrow requirement for certain small lenders that could apply to some smaller institutions. Lenders should refer to the rule for details regarding the exemptions.

In addition, if flood insurance is required the notice that the lender must provide to the borrower (Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance) has been revised effective 1/1/2016 to mention the escrow requirement, among other changes.

The full text of the revised rules can be found in the Federal Register.