Flood Zone Determinations

The steps as outlined by FEMA, to make the flood zone determination are as follows:

(1) Find the correct flood map, (2) Find the general location of the subject property, (3) Find the specific location of the subject property's improvements on the flood map, and (4) Identify the flood insurance risk zone as shown on the map.

When is a lending institution required to make or obtain a flood zone determination?

A flood zone determination must be made or obtained whenever a federally regulated lender makes, extends, increases, or renews a loan secured by a building or mobile home. In addition, federal regulators recommend that lenders and servicers, as a mater of safety and soundness, conduct periodic reviews of existing portfolios and perform prospective analyses on portfolio acquisitions, as well as monitor changes triggered by flood map revisions.

What are the major obligations for lending institutions with respect to flood determinations?

Lending institutions have the following obligations: (1) Determine whether the building is or will be located in an SFHA; (2) Document the flood hazard determination; (3) Require that flood insurance (when it is required) is obtained to the appropriate limit; and (4) Ensure that required flood insurance is maintained for the term of the loan or added if the property is subsequently determined to be in an SFHA.

Is a lending institution required to use a third-party provider, such as CoreLogic Flood Services, for its flood determinations?

Lending institutions may make their own flood determinations; however, most choose to use a third-party provider because of the resources and expertise required to make the determinations and the guarantees provided by these companies. For a lender to use a flood determination made by a third-party provider, the determination must be guaranteed according to the regulations. Lenders should ensure that the company is following FEMA guidelines with respect to its flood determinations. Whether or not a lending institution utilizes a third party provider, the ultimate, non-delegable obligation to require flood insurance on designated loans is on the lending institution.

How do lending institutions determine a loans flood insurance requirement?

The lending institution must determine or have a third party determine if a building or mobile home (and personal property securing the loan, if applicable) is located within a Special Flood Hazard Area (SFHA) as shown on the effective Flood Insurance Rate Map for the property's community. If any portion of the improvements is located within the SFHA, then flood insurance is required.

How long before the loan closing should a lending institution complete or obtain a Standard Flood Hazard Determination Form?

The regulations do not prescribe a specific timeframe prior to loan closing; however, if the property is in the SFHA, then within a reasonable time period prior to the loan closing, the lending institution must provide a notice to the borrower stating that flood insurance is required. Some regulators agree that a "reasonable period of time" is at least 10 days.

Is a lending institution required to provide a copy of the Standard Flood Hazard Determination Form to its borrower?

There is no requirement for the lending institution to provide a copy of the Standard Flood Hazard Determination Form to the borrower, regardless of whether or not the property is within the SFHA. However, the lending institution must keep a record (hardcopy or electronic) of the flood determination or be able to retrieve a copy of the form in the event that a regulator requires it.

Is the Standard Flood Hazard Determination Form required? Are there any exceptions?

Yes, the Standard Flood Hazard Determination Form (SFHDF) is required federal document that federally regulated lending institutions must complete or have completed as a condition of making, extending, increasing, or renewing a loan that is to be secured by improved real estate. Loans that are exempt from the mandatory purchase requirements for a flood zone determination, are on state-owned property covered by self-insurance acceptable to the director of FEMA and on loans with an original outstanding balance of $5,000 or less and a repayment term of one year or less.

Is a Standard Flood Hazard Determination Form required for a condominium unit, a cooperative unit, or a commercial building?

Yes, the mandatory purchase requirements, including the requirement for a flood determination, apply equally to commercial properties as they do to residential properties. In addition, the requirements apply to condominium, cooperative, timeshare units and all forms of single or multi-family dwellings.