Answers about Flood Insurance

     With the approach of another hurricane season and the increase in mortgage loan re-financing, many of you may have questions about the need for “flood insurance” on your property. As such, we have compiled several short questions and answers, as to this particular subject, in order to help you better understand a bank’s requirements whenever it makes a mortgage loan.

     What is flood insurance?

     Flood insurance covers losses to your property caused by flooding. Most standard policies will cover:

• structural damage
• furnace, water heater and air conditioner
• flood debris cleanup
• floor surfaces such as carpet and tiles

     A flood policy can also be purchased to cover the personal contents of your home, such as furniture, collectibles, clothing, jewelry, and artwork. Check with your insurance agent on your homeowner’s policy to find out what coverage you currently have on personal belongings.

     I applied for a mortgage loan and the bank is forcing me to buy flood insurance. Can it do this?

     Yes. If your property is an area determined by the government to be in a flood plain or in a Special Flood Hazard Area (“SFHA”), any federally regulated lender will require you to buy flood insurance before you get a mortgage loan. You do not, however, have to buy the policy from the bank; it can be purchased through insurance companies that sell policies through their network of agents.

     The premiums for flood insurance vary depending on the zone in which the property is located.

     When I first purchased my property, it wasn’t in a flood plain, but when I refinanced my mortgage loan the bank said the flood maps had changed and flood insurance was required. Is this possible?

     Yes. Flood map designations are subject to change and if a bank learns that a flood map revision identifies a structure securing a loan as having been placed in a Special Flood Hazard Area (SFHA), the bank must notify you that flood insurance is needed. In fact, a national bank may not make, increase, extend, or renew any mortgage loan unless that property is covered by flood insurance (for properties determined to be in a SFHA).

     Can a bank require that I escrow the premiums for flood insurance?

      It depends. If the lender requires the borrower to escrow for other funds associated with the loan, such as taxes, insurance premiums, or any other fees or charges, the escrow of flood insurance premiums is mandatory.

     Is this flood insurance requirement only on residential properties?

     No. The flood insurance requirements discussed above apply to any “structure” located in a flood plain or SFHA therefore, flood insurance will be required on commercial properties as well.

     Is there someone I can contact, other than the bank, if I have flood insurance questions?

     Yes. You may contact the Federal Emergency Management Agency (FEMA) directly at their assistance center at 1-877-336-2627.