Dropping flood insurance a few weeks before closing

Asked by Mr Anonymity, Missoula, MT Tue Jun 18, 2013

I'm selling a house without an agent to my neighbor who is paying mostly cash. (financing about 20%). It is in a 100 yr flood plain.

We are under-water on the mortgage & are paying the maximum possible ($250k policy) for flood insurance which comes to about $4200 a year as required by our mortgage company - BAC. We have no escrow account - self managed escrow.

My insurance company often forgets to send in our yearly proof of flood insurance & it usually takes BAC about 45 days to get annoyed & threaten to purchase insurance at a premium without our consent. We just paid our flood insurance & when we close in 60 days, we should get a refund of about $3000. We could really use that $3000 at closing. Is there any chance this could cause an issue for the buyers or for me paying off the loan if we drop flood insurance?

Please, no lectures about the possibility of flooding etc. Not something I'm worried about & you don't want to get me ranting about FEMA & what a joke they are. :)

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missouladeborah’s answer
missouladebo…, , Missoula, MT
Wed Jun 19, 2013
I'd recommend passing all of the information you have put in here, on to the Title Company as they are responsible for recordings, HUD statement and disbursement of funds. Usually the seller is responsible to maintain all homeowner's insurance until actually recorded and as other agents have noted below, you don't want to do anything to 'upset the apple cart' right before closing. Since you don't have an escrow account, you may need to handle your refund of insurance directly with the insurer.

Deborah Gladback, Realtor
Missoula, MT
(406) 532-9200
0 votes
Annette Law…, Agent, Palm Harbor, FL
Tue Jun 18, 2013
If you fail to fullfill your obligations as spelled out in your mortgage contract (keep the home insured) you could inadvertantly trigger a response from the lender that may effect the simple closing you have already scheduled. You need to chat with someone intimatlely knowledgeable regarding this issue .... like the folks at BAC.
You really, really don't want to do anything that tilts the table in any direction while a sale is in process. Too often a buyer will go and purchase appliances in anticipation of moving in...this tilts the buyer financials and can prove catosrophic!
Doing something now, weeks before a closing, that involves obligations to the existing lender is inviting drama.
Then there's always that flash flood thingy....:)

Best of success,
Annette Lawrence, Broker/Associate
Remax Realtec Group
Palm Harbor, FL
0 votes
Probably good advice... thank you!
Flag Tue Jun 18, 2013
Christina Ha…, Mortgage Broker Or Lender, Morristown, TN
Tue Jun 18, 2013
So basically you paid your flood insurance in full for the upcoming year, and in 60 days you will be closing. The buyers escrow and flood policy has nothing to do with yours. You should get a prorated refund for the amount of time of the year you paid you will no longer need the policy. Many times a sellers policy and a buyers insurance policy will over lap each other, until the day of closing. For many buyers take out the policy a couple days up to weeks prior to closing and the sellers don't cancel until the day of or after closing.
Have a great day;

Christina Solorzano;
CEO & SR Credit & Mortgage Consultant of
Everlasting Credit Repair
Making home ownership more than a dream...
Retired Mortgage Banker
0 votes
Ya, I get all that. What I'm asking is if I deviate from this and cancel my policy say 3 weeks prior to closing, what issues could it cause?

So if it's uninsured for a few weeks, is this going to cause any problems at closing in regards to the mortgage payoff and providing a clean title to the buyer? Like the previous poster mentioned, I don't want to cause any drama. Judging by past experience though, my lender probably wont' even realize this has happened.
Flag Wed Jun 19, 2013
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