Under the agencies’ regulations, junior lienholders are not required to escrow for flood insurance if the borrower has obtained flood insurance for a closed-end second mortgage loan that meets the mandatory purchase requirement. Thus, the lender or its servicer must ensure that adequate flood insurance is in place. Question No. 36 of the July 2009 Interagency Questions and Answers Regarding Flood Insurance explains the requirements for junior lienholders. If adequate flood insurance is not obtained, the lender or servicer would need to escrow. However, the escrow requirements do not apply to a junior lien that is a home equity line of credit (HELOC).
Reference: Interagency Flood Insurance Regulation Update Webinar: Q&As, 2015, Q8.