All in Flood

When the guidelines for the detached structure exemption from flood insurance were first announced, many jumped for joy.  Over the years, many of customers and lenders alike have argued that flood insurance shouldn’t be required for certain detached structures, though flood insurance rules have traditionally required flood insurance for any collatoralized structure located in a high-risk flood zone, regardless of whether or not it was a residence, commercial building, or storage shed.  So, when the Homeowners Flood Insurance Affordability Act of 2014 provided for an exemption for flood insurance for certain detached structures, many were excited to quickly use the detached structure exemption to avoid flood insurance.

Unfortunately, many soon realized that the detached structure exemption couldn’t be used for every detached structure that was not a residence.  In addition, some ambiguity in the rules left many wondering which structures could actually qualify for the detached structure exemption. For example, one of the main questions we continue to see is this: Can detached structures on investment properties still qualify for the exemption from obtaining flood insurance?

While flood insurance compliance is extremely important due to potential fines and penalties, the rules can be quite confusing and cumbersome for both customers and financial institutions.  For example, when a structure is found to be in a high-risk flood zone, flood rules require that a flood notice be sent to the applicant advising them of being in a flood zone, their responsibilities for obtaining insurance, and a few other disclosures.  These rules, however, don’t provide time-frames on when, exactly, the flood notice must be delivered. Therefore, there has been quite a bit of confusion over the timing requirements of the flood notice that must be delivered to borrowers who have a collateralized structure in a high-risk flood zone.

On January 25, 2019, the joint agencies issued a final rule requiring lending institutions to accept “private flood insurance.”  This long-awaited rule was mandated by the Biggert-Waters Act and went through two different proposals. One of the biggest challenges the new rule could have created relates to how lenders will determine whether a private flood insurance policy is considered to be in compliance and, therefore, acceptable.  To alleviate this challenge, the final rule provides a…

Every couple of years, the National Flood Insurance Program (NFIP) gets set to expire.  This is a result of the way Congress funds the program as the typically only renew the program for a few years at a time.  That is, if they renew the program on time.

Often times, the program is operating at a loss and Congress has a difficult time passing a long-term approval of the program.  When this happens, the program is typically reapproved on a short-term basis, but there are cases where the program expires.

Flood Insurance for a Building with No Value

Is flood insurance required for an old dilapidated building that has no value to either the owner or lender? Adam uses this Compliance Clip (video) to answer this question and provide the regulatory guidance used to support his answer. As flood insurance penalties are easily assessed for even just a few violations, financial institutions need to ensure they don't get washed out with rogue lenders not following the rules. Oh yeah, there might even be a flood pun or two in this video.

When a customer doesn’t pay their flood insurance premiums and allows their flood insurance to lapse, financial institutions are required to force-place flood insurance for an appropriate amount.  While customers who allow their flood insurance coverage to lapse often do so because they can’t or don’t want to pay for such coverage, it can be difficult for financial institutions to collect for the premiums (or cost) of the force-placed flood insurance.

Closing a Loan with Force Placed Flood Insurance

Adam uses this Compliance Clip (video) to answer the question: Can you close a loan with force placed flood insurance? This question often comes up when an applicant has an existing loan with force placed flood insurance coverage and wants to refinance. Adam explains the conservative approach that will ensure compliance with flood insurance rules.