A servicer determines that flood insurance on a designated loan has expired and sends the borrower the required notice. The borrower does not obtain adequate coverage within 45 days. What must the servicer do?
Correct Answer
A) Purchase flood insurance on the borrower's behalf
Why this is correct: If a borrower fails to obtain adequate flood insurance within 45 days after required notice, the servicer must purchase flood insurance on the borrower's behalf (force-place insurance). This is a mandatory requirement under the National Flood Insurance Act and Regulation H to protect the collateral and ensure compliance. Why the other choices are wrong: The option "Wait until the next annual escrow analysis" is incorrect because the 45-day deadline triggers immediate action, not a delayed escrow review. The option "Release the property from the mortgage" is wrong; failing to maintain insurance is a default, but it does not result in a release of the lien—it typically leads to force-placed insurance or default proceedings. The option "Cancel the borrower's hazard insurance" is incorrect; hazard insurance (for fire, etc.) is separate from flood insurance and should not be canceled due to a flood insurance lapse. Exam tip: Remember the sequence: notice, 45-day wait, then force-place. The servicer must act.
Why This Is the Correct Answer
Why this is correct: If a borrower fails to obtain adequate flood insurance within 45 days after required notice, the servicer must purchase flood insurance on the borrower's behalf (force-place insurance). This is a mandatory requirement under the National Flood Insurance Act and Regulation H to protect the collateral and ensure compliance. Why the other choices are wrong: The option "Wait until the next annual escrow analysis" is incorrect because the 45-day deadline triggers immediate action, not a delayed escrow review. The option "Release the property from the mortgage" is wrong; failing to maintain insurance is a default, but it does not result in a release of the lien—it typically leads to force-placed insurance or default proceedings. The option "Cancel the borrower's hazard insurance" is incorrect; hazard insurance (for fire, etc.) is separate from flood insurance and should not be canceled due to a flood insurance lapse. Exam tip: Remember the sequence: notice, 45-day wait, then force-place. The servicer must act.
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