Servicing Guide

Published June 13, 2018

E-4.4-03: Continuing or Canceling Flood Insurance Coverage (08/12/2015)

The actions the servicer must take regarding the continuation or cancellation of flood insurance coverage are dependent upon

  • the lien position of the mortgage loan, and

  • whether or not there is claimable flood damage to the property.

This topic contains the following:

Overview of Servicer Responsibilities Associated with the Decision to Continue or Cancel Flood Insurance

The following table describes the servicer's responsibilities regarding flood insurance.

The servicer must...

Perform any required post-foreclosure property inspection.

File any necessary flood insurance claims.

The servicer generally does not need to conduct a post-foreclosure property inspection if its preforeclosure inspection for a property that is covered by a flood insurance policy does not reveal any damage that would be claimable under the flood insurance policy. However, when the servicer believes that a flood-related event that occurs after its preforeclosure property inspection could have resulted in claimable damage to the property, the servicer must make a post-foreclosure property inspection within 15 days after the property is acquired to determine whether such damage exists. Fannie Mae will reimburse the servicer for the cost of this property inspection.

A second lien mortgage loan servicer is not required to make a post-foreclosure property inspection under any circumstance if Fannie Mae acquires the property subject to an existing first lien mortgage loan in which Fannie Mae has no ownership interest. See D2-2-10, Requirements for Performing Property Inspections for requirements when completing a post-foreclosure property inspection.

Note: If the insurance carrier is not willing to cancel a policy because Fannie Mae is not the named insured, the servicer must request cancellation of Fannie Mae's mortgagee interest in the policy and removal of the servicer's name from the policy since it will no longer be responsible for paying the renewal premiums.

When the Preforeclosure Inspection Reveals No Claimable Damage

If the servicer's preforeclosure inspection for a property secured by a first lien mortgage loan does not reveal any claimable damage under the flood insurance policy, the servicer should not take any action related to the property until after the foreclosure sale. However, if a flood-related event occurs between the date of the servicer's preforeclosure property inspection and the date the property is acquired, the servicer must inspect the property and, if appropriate, file a claim for damages in accordance with When the Property Inspection Reveals Insured Flood Damage in E-4.4-03, Continuing or Canceling Flood Insurance Coverage.

The following table describes the servicer's responsibilities related to the cancellation of flood insurance coverage for a first lien mortgage loan.

Immediately following the foreclosure sale, the servicer must...

Notify the flood insurance carrier to cancel the policy.

Ask the flood insurance carrier to send it any unearned premium refund, unless prohibited by the policy or applicable law.

The following table describes the servicer's responsibilities related to the cancellation of flood insurance coverage for a second lien mortgage loan.

If... Then...

the second lien mortgage loan servicer's preforeclosure inspection does not reveal any claimable damage under the flood insurance policy

the servicer must notify the flood insurance carrier to cancel Fannie Mae's second lien mortgagee interest as soon as the property is acquired.

the second lien mortgage loan servicer is responsible for paying the flood insurance premiums

the servicer must ask the insurer to send it any unearned premium refund, unless prohibited by the policy or applicable law.

Fannie Mae has an ownership interest in both the first and second lien mortgage loans

the first lien mortgage loan servicer must send the notification for both mortgage loans and assume responsibility for receiving and remitting the unearned premium.

A second lien mortgage loan servicer may need to pursue a different course of action when Fannie Mae acquires title to the property subject to an outstanding first lien mortgage loan in which Fannie Mae had no ownership interest and chose not to pay off that mortgage loan. The servicer’s required action will depend on whether or not the first lien mortgage loan servicer required flood insurance coverage on the property. The following table provides the second lien mortgage loan servicer with instructions that will vary depending on the flood insurance coverage requirements of the first lien mortgage loan servicer.

If the first lien mortgage loan servicer... Then the second lien mortgage loan servicer must...

required flood insurance coverage

advise the flood insurance carrier to remove Fannie Mae's second lien mortgagee interest and to show instead that Fannie Mae is the named insured.

The second lien mortgage loan servicer will have no further responsibilities related to that coverage.

did not require flood insurance coverage

notify the flood insurance carrier to cancel the policy covering the second lien mortgage loan amount and request the insurer send it any unearned premium refund, unless prohibited by the policy or applicable law.

When the Property Inspection Reveals Insured Flood Damage

A. First lien mortgage loan servicer responsibilities. When either a preforeclosure or post-foreclosure property inspection reveals claimable flood damage, the servicer of a first lien mortgage loan must file a claim with the flood insurance carrier immediately. When Fannie Mae has an ownership interest in both the first and second lien mortgage loans, the first lien mortgage loan servicer must file a combined claim for the two mortgage loans.

If the property has not been acquired at the time the claim is filed, the servicer must not take action to cancel Fannie Mae's interest in the policy until after the acquisition.

As soon as the property is acquired, the servicer must notify Fannie Mae's SF CPM division (see F-4-03, List of Contacts) that a claim has been filed, but must not authorize any repairs to the property because Fannie Mae's designated broker, agent, or property management company will be responsible for all repairs. The servicer must ask the flood insurance carrier to cancel the policy as soon as the claim is settled and, unless prohibited by the policy or applicable law, to send it any unearned premium refund.

B. Second lien mortgage loan servicer responsibilities. The servicer of a second lien mortgage loan must file a claim only if it is or was responsible for maintaining flood insurance coverage, either because the first lien mortgage loan servicer did not require such coverage or because the first lien mortgage loan servicer cancelled its mortgagee interest when Fannie Mae paid off the first lien mortgage loan in connection with Fannie Mae's foreclosure of the second lien mortgage loan.

When the first lien mortgage loan servicer requires flood insurance coverage, the second lien mortgage loan servicer must work with the first lien mortgage loan servicer to ensure that Fannie Mae's interests are adequately protected.

When the second lien mortgage loan servicer files a claim, its action will depend on whether or not Fannie Mae has acquired the property at the time the claim is filed.

If the property has not been acquired, the servicer must not take action to cancel Fannie Mae's interests in the policy until after the acquisition. As soon as the property is acquired, the servicer must notify Fannie Mae's SF CPM division (see F-4-03, List of Contacts) to indicate that a claim has been filed, but must not authorize any repairs to the property because Fannie Mae's designated broker, agent, or property management company will be responsible for all repairs. The servicer must ask the flood insurance carrier to cancel the policy as soon as the claim is settled and, unless prohibited by the policy or applicable law, to send it any unearned premium refund.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC–2015–11 August 12, 2015