Conflicting Flood Determinations

Issue/Inquiry

The Bank is trying to determine whether the property requires flood insurance based on a discrepancy between the property’s mailing address and the property’s location. The Bank’s search company, which uses the mailing address, determined that flood insurance is not required. However, the title company, using the property’s location, places it in two different flood zones, one of which is a Special Flood Hazard Area (“SFHA”). Should the Bank require flood insurance in this case?

Response Summary

The Bank and the title company should request that the search companies review their work. In the event that this does not result in a resolution, a request for a Letter of Determination can be made to FEMA. If a portion of the property is located in a SFHA, but there is no walled or roofed structure located on it, no flood insurance will be required. However, the Bank should resolve this discrepancy before going forward with the loan.

Response Detail

The flood determinations prepared by the search companies engaged by the Bank and the title company differ as to NFIP Community Name, NFIP Community Number, NFIP Map Number, and NFIP Map Panel. Had this information been the same and only the flood zone was different, there should have been a Letter of Map Change on the most recent certification, since flood zones change. With such differences on the certifications, however, one of them must be in error.

The first step is for the Bank and title company to request the search companies to review their work. Each should be able to provide a working map showing how the determination was made. The lot or parcel would be drawn on the Flood Insurance Rate Map (“FIRM”) with the location of the structure noted. This should allow the search companies to reach a consensus as to where the property is located and whether the improved portion of it is located in a SFHA.

If the conflict cannot be resolved on this basis, a request for a Letter of Determination Review (“LODR”) can be made to the Federal Emergency Management Agency (“FEMA”) within 45 days of the Notice of Special Flood Hazard issued by the lender. The LODR process enables FEMA to verify whether the building’s location was correctly identified on the applicable FIRM. A successful LODR releases the lender from the obligation to require the purchase of flood insurance and identifies the building as being in a low-to-moderate flood risk area. FDIC, FIL-114-2007.

With regards to the determination by the title company’s provider, indicating that one lot is located in a SFHA and one is not, the requirement for flood insurance applies only to loans secured by buildings or mobile homes located in what FEMA has determined to be SFHAs. The term “building” means a walled and roofed structure, other than a gas or liquid storage tank, which is principally above ground and affixed to a permanent site. If there are no walled or roofed structures on the lot located in the SFHA, flood insurance will not be required. 12 CFR §§339.1(c), 2, and 3(a). The search company should verify that the location of any building is not on the lot identified as being in a SFHA.

Flood insurance will probably not be required, since both providers are in agreement that a portion of the property securing the loan is not in a SFHA, while the portion that purportedly is located in a SFHA does not have a building on it. Whatever reliance is made on third party providers, however, the responsibility for making a flood determination remains that of the lender. 12 CFR §339.6. Therefore, the conflict should be resolved before the Bank goes forward with the loan.

This entry was posted on Monday, September 19th, 2016 at 2:00 pm.