As the mandatory compliance date for the new rules regarding private flood insurance are rapidly approaching each financial institution must ensure it is ready for the July 1, 2019 implementation date. Fortunately, there are a few things that can be done to ensure compliance.

When the guidelines for the detached structure exemption from flood insurance were first announced, many jumped for joy.  Over the years, many of customers and lenders alike have argued that flood insurance shouldn’t be required for certain detached structures, though flood insurance rules have traditionally required flood insurance for any collatoralized structure located in a high-risk flood zone, regardless of whether or not it was a residence, commercial building, or storage shed.  So, when the Homeowners Flood Insurance Affordability Act of 2014 provided for an exemption for flood insurance for certain detached structures, many were excited to quickly use the detached structure exemption to avoid flood insurance.

Unfortunately, many soon realized that the detached structure exemption couldn’t be used for every detached structure that was not a residence.  In addition, some ambiguity in the rules left many wondering which structures could actually qualify for the detached structure exemption. For example, one of the main questions we continue to see is this: Can detached structures on investment properties still qualify for the exemption from obtaining flood insurance?

While flood insurance compliance is extremely important due to potential fines and penalties, the rules can be quite confusing and cumbersome for both customers and financial institutions.  For example, when a structure is found to be in a high-risk flood zone, flood rules require that a flood notice be sent to the applicant advising them of being in a flood zone, their responsibilities for obtaining insurance, and a few other disclosures.  These rules, however, don’t provide time-frames on when, exactly, the flood notice must be delivered. Therefore, there has been quite a bit of confusion over the timing requirements of the flood notice that must be delivered to borrowers who have a collateralized structure in a high-risk flood zone.