A servicer handles a loan of an FDIC-supervised institution subject to mandatory flood-insurance requirements. Required coverage lapses, and the servicer properly notifies the borrower to obtain adequate coverage. The borrower does not do so within 45 days. What must the servicer do?
Correct Answer
D) Purchase the required flood insurance on the borrower's behalf and it may charge the related premiums and fees
D. Purchase the required flood coverage for the borrower; related premiums and fees may be charged. The applicable rule makes purchase mandatory when the borrower fails to obtain coverage within the stated notice period. Neither an escrow analysis nor another complete notice cycle is a prerequisite in these facts. Scope and exceptions: This is flood insurance under the stated regulation, not a general rule for every hazard-insurance notice. Evidence of borrower coverage can trigger separate termination and overlapping-premium refund duties. Source: 12 CFR 339.7(a)–(b) — https://www.ecfr.gov/current/title-12/chapter-III/subchapter-B/part-339/section-339.7
Why This Is the Correct Answer
D. Purchase the required flood coverage for the borrower; related premiums and fees may be charged. The applicable rule makes purchase mandatory when the borrower fails to obtain coverage within the stated notice period. Neither an escrow analysis nor another complete notice cycle is a prerequisite in these facts. Scope and exceptions: This is flood insurance under the stated regulation, not a general rule for every hazard-insurance notice. Evidence of borrower coverage can trigger separate termination and overlapping-premium refund duties.
Why the Other Options Are Wrong
Option A: Wait until the next annual escrow analysis before purchasing coverage
An annual escrow schedule does not postpone this duty.
Option B: Send another 45-day notice before purchasing any coverage
It invents another 45-day prerequisite.
Option C: Continue requesting coverage but leave force placement optional indefinitely
It turns a mandatory purchase into indefinite discretion.
Exam Tip
Identify the insurance type before applying a notice timeline.
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