If a borrower applies for a loan secured by property in a flood zone in Dec. 2015, but doesn’t close the loan until 2016, do the new flood escrow rules apply? If so, do we have to send the escrow notice?
Yes, you are required to escrow for any loan that is "made, increased, extended, or renewed on or after January 1, 2016." You look at the consummation date, not the application date.
The notice requirement is a bit more nuanced. The regulation changes as of January 1st to provide:
(b) Notice. For any loan for which an FDIC-supervised institution is required to escrow under paragraph (a) or paragraph (c)(2) of this section or may be required to escrow under paragraph (a)(3) of this section during the term of the loan, the FDIC-supervised institution, or a servicer acting on its behalf, shall mail or deliver a written notice with the notice provided under §339.9 informing the borrower that the FDIC-supervised institution is required to escrow all premiums and fees for required flood insurance, using language that is substantially similar to model clauses on the escrow requirement in appendix A. 12 CFR 339.5 (effective Jan. 1, 2016).
Note that the statute does not have a timing requirement. Also note that this isn’t effective or required until January. For applications received in December, a good practice would be to wait until January to send the notice. For example, if you receive an application on Dec 20th, but the loan doesn’t close by Dec. 31st, send the new notice required by Appendix A of 12 CFR 339 before you consummate in January.
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