Community banks and credit unions often do everything they can to keep loan costs down for their customers. They will waive fees, reduce rates, and even forego certain loan related activities in order to keep their customers satisfied. One of the ways financial institutions will try to save money for their customers is to reuse a flood determination from a prior loan.
Any time a lender makes, increases, renews, or extends (MIRE) a loan secured by a structure, the lender must obtain a flood determination so that it knows whether or not the structure is located in a high-risk flood zone requiring flood insurance. As some borrowers are frequently restructuring loans for the same property, requiring a new flood determination for each MIRE event would seen redundant.
Three Factors for Reusing a Flood Determination
Fortunately for some, flood rules permit a creditor to reuse a flood determination in some cases, as long as certain requirements are met:
The determination was initially recorded on the Standard Flood Hazard Determination Form (SFHDF).
The prior determination is not more than 7 years old; and
No new or revised FIRM or FHBM has been issued since the last determination was obtained.
Prior Determination on a SFHDF
The first requirement is simple. When FEMA first started requiring the SFHDF, this requirement would have prohibited some determinations from being used. Now that the SFHDF has long been in place, this should not be an issue for reusing a determination.
Not More Than 7 Years Old
The second requirement for reusing a flood determination is that the prior determination must not be more than 7 years old. Most are aware of this requirement, and it too is fairly simple. All you have to do is look at the issue date on the prior flood determination and as long as the issue date is not greater than 7 years old, you can pass this test.
But this this not the final test.
No Map Changes
The third requirement for reusing a flood determination - one that is often overlooked by community banks and credit unions - is that the flood maps cannot have changed since the last determination was pulled. This requirement is actually a bit trickier than it would initially seem. Let me try to explain.
Many lenders often believe that their flood vendor would notify them of a map change when they have “life-of-loan coverage” on a loan. Life-of-loan coverage is a service offered by most flood vendors where they will notify a financial institution if a structure has gone into or come out of a high-risk flood zone. The confusion here is that, from my experience, most life-of-loan coverage does not notify you of every map change, but only notifies you when a structure goes into or comes out of a high-risk flood zone. This means that if a map changes, but the risk zone of the structure does not change, the vendor is not going to notify the bank.
This is something that you can confirm with your vendor, but I have been on several calls where a vendor confirmed to a lender that they would not notify them of just a map change when the risk zone of the structure also did not change. This means that there is an additional step to determine if a flood determination can be reused.
Verifying Flood Maps Have Not Changed
To ensure that the flood maps have not changed, a financial institution has a few options. First, they can just pull a new flood determination. Many community banks and credit unions have found this to be the easiest solution logistically. It does cost the customer (slightly) more, but it is a sure way to make sure the determination is accurate.
Secondly, the financial institution may be able to contact their flood vendor to get a “recertification” of the original determination. Many vendors offer this service for free, so this is a very viable - and more affordable - option for most financial instiututions.
Finally, a financial instution could always conduct a manual check of the maps on FEMA’s website at this link: https://msc.fema.gov/portal/search. The task here is to compare the date of the map on FEMA’s site with the date on the flood determination. If the dates are the same, the maps have not changed and the prior flood determination can be reused.
FEMA FAQ On Reusing a Flood Determination
FEMA FAQ 68 provides more guidance on this topic:
68. May a lender rely on a previous determination for a refinancing or assumption of a loan or multiple loans to the same borrower secured by the same property?
Answer: It depends. Section 528 of the Act, 42 U.S.C. 4104b(e), permits a lender to rely on a previous flood determination using the SFHDF when it is increasing, extending, renewing, or purchasing a loan secured by a building or a mobile home. Under the Act, the ‘‘making’’ of a loan is not listed as a permissible event that permits a lender to rely on a previous determination.
When the loan involves a refinancing or assumption by the same lender who obtained the original flood determination on the same property, the lender may rely on the previous determination only if the original determination was made not more than seven years before the date of the transaction, the basis for the determination was set forth on the SFHDF, and there were no map revisions or updates affecting the security property since the original determination was made. A loan refinancing or assumption made by a lender different from the one who obtained the original determination constitutes a new loan, thereby requiring a new determination. Further, if the same lender makes multiple loans to the same borrower secured by the same improved real estate, the lender may rely on its previous determination if the original determination was made not more than seven years before the date of the transaction, the basis for the determination was set forth on the SFHDF, and there were no map revisions or updates affecting the security property since the original determination was made.
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