Reusing a Prior Flood Determination
In this video, Adam explains the rules behind when a prior flood determination can be used in lieu of getting a new one. There are three very specific requirements that must be met and each is explained in detail.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about reusing a prior flood determination form. Under the flood rules, a Standard Flood Hazard Determination Form or SFHDF is required anytime a creditor makes, increases, renews, or extends a loan. So, anytime you make, increase, renew, or extend a loan, you have to have a Standard Flood Hazard Determination Form in file, along with some other things. The acronym there, of course, is M-I-R-E. Anytime you MIRE a loan, you have to make sure there is a Standard Flood Hazard Determination Form in file.
Usually, you're going to get a new one, but there are some opportunities to reuse a prior determination that you, as the creditor, has on file. There's actually three conditions in order to reuse a prior flood determination form.
The first condition is that the determination was initially recorded on the Standard Flood Hazard Determination Form. This was an issue when that form first came out, but now that we've been through many years of this, well over a decade or probably two, that's, this is no longer an issue. The second is that prior determination cannot be more than seven years old. And the third requirement is that the flood maps have not changed.
Let's take a deep dive into these real quick.
First of all, the determination must have been recorded on the Standard Flood Hazard Determination Form. As I said prematurely a second ago, this is not a problem anymore. So, this really should not be an issue. You've got it on your form, move on.
The second requirement here is that the prior determination cannot be more than seven years old. This is fairly simple. Just do some math. Figure it out. If the date on the determination is more than seven years old, you can't reuse it. So that's very simple.
Now, the third option is a little more complex. It’s that the flood maps could not have changed from the prior determination. This is a bit more difficult. Now, the reason this is a bit more difficult is that flood maps changing is not covered in “life-of-loan” monitoring. A lot of banks and credit unions will purchase a service from a flood determination company that is called “life-of-loan” monitoring.
What the life of loan monitoring does is it will notify your financial institution anytime a property goes into or out of a high-risk flood zone. So if a property used to be in a low-risk zone and now it's suddenly in a flood zone because of a dam change or a levee change somewhere up the river, then they will notify you. Same for a property going out. What they will not notify you for is if the maps have changed. Now, why not? Well, they will not have notified you because this is not a regulatory requirement. Life-of-loan coverage is not a regulatory requirement. It is actually something that was created by the flood industry as an add-on service. This is a matter of risk. Because as a lender, if I have a huge portfolio of loans that are now suddenly in a flood zone, a high-risk flood zone, I want to know about this. And that's a service a lot of financial institutions are willing to pay for. But that is not part of the flood rules, and therefore flood vendors will not typically notify you if the maps have changed.
Don't believe me? Which some of you might not. What you can do is call your flood vendor and ask them if they will notify you if a map changes. Because what happens is in the maps, there can be a hundred properties and only two go into a high-risk zone when a map changes and one comes out and the flood vendor will only notify you of three properties, those that go in and out of a high-risk zone. What they won't tell you is about the 97 other ones that had a map change. So if you don't believe me, call the flood vendor and see because I've done that with several banks I've consulted with in the past and I found that to be true. So it makes it a bit more challenging.
What we need to do is we have to take an additional step then to meet this requirement here that the flood maps have not changed. This additional step really gives us three different options to ensure that the maps have not changed.
The first option is to get a new determination. That's probably the easiest way but it might cost your customer a little bit more, which some of your lenders are sensitive to, which is fine. The second option then is to get a recertification. A recertification is a fantastic way to make sure you have a current life-of-loan. A current flood termination form on file. A recertification is something your flood vendor will offer and some flood vendors actually do this for free. They will offer you a recertification where they stamp, literally stamp, a new date right onto your flood determination form. This means that the new determination would be good for another 7 years. That is a fantastic way to make sure you have a current flood determination form. Contact your vendor, see if they'll do it.
If those two options are not going to work for you, you have a third option which is to manually check maps. Now I don't like this option, frankly, because the first option is easy. Just get a new form, be done with it, pass the cost on to the customer if they can afford the $15, $7, whatever it is. Recertification is a good option for a lot of you, but this third option may be something you want to explore, and if you're going to manually check the maps, this means you're checking the flood maps and comparing those to your determination to make sure the maps have not changed. How do you do this?
Well, you go to FEMA's website at https://fema.gov/portal/search. What you do is there's usually a map that is on the site, you type in the address, it pulls it up, you click on the map, then you pull up with the current maps are, there's a date, you compare that date to your flood determination form, and you can then know if you have a current map or if the maps have changed. If they have, you have to get a new form.
That's all I have for today.