Bank is making a loan secured by improved real property located in a special flood hazard area. The insurance agent has provided a copy of the binder for the flood insurance policy. Is this sufficient proof that the property is insured against flood hazard?

An insurance binder is not sufficient proof that the property is insured against flood hazard. For the purchase of new flood insurance coverage, the borrower must provide either a declarations page or a copy of the application and proof that the first premium has been paid. For renewal policies, a certificate of insurance is acceptable if it provides certain required information.

Under the FDIC’s flood regulations, a bank shall not make, increase, extend or renew any loan secured by improved real property located in a special flood hazard area, when the community in which the property is located participates in the National Flood Insurance Program (“NFIP”), unless the property is covered by flood insurance for the term of the loan. 12 CFR 339.3(a).

In order to avoid delays closing loans located in special flood hazard areas, the following is sufficient evidence of proof of purchase for new policies:

• • Declarations page of insurance policy; or
• • Copy of Flood Insurance Application with proof that the first premium has been paid.

Proof that the first premium has been paid can be a copy of the cancelled check, receipt, or certification from the insurance agent.

The NFIP does not recognize binders as proof of insurance.

For renewal policies, the NFIP will recognize certificates of insurance if the following information is included:  the policy form/type, term, and number; insured’s name and mailing address; property location; current and rated flood risk zone; grandfathering status; mortgagee name and address; coverage limits, deductibles; and annual premium.

 

12 CFR 339, Appendix A, Note A; FEMA W-13013.

This entry was posted on Wednesday, November 13th, 2013 at 9:07 pm.