I have a loan that is located in a flood hazard area and the community does not participate in the NFIP, can you require flood insurance on the property?

The customer purchased a flood policy and paid the full premium. The insurance company has rejected the policy for several different reasons. First they needed an elevation certificate. We provided that to them. Then we were notified that the community chose not to participate in the NFIP back in December 2010 and they could not write the policy and the customer would NOT be able to purchase a flood policy on the property.

What do I need to do to insure we are in compliance?

They cannot purchase a policy through the NFIP. If you do require insurance it will have to be from a private insurer such as Lloyds.

Can we not require flood insurance and still be in compliance?

There is no NFIP insurance available in a non-participating community, so it comes down to a safety and soundness decision.

Yes. However you will not be able to sell the loan to Fannie or Freddie. You also still have to comply with all the notice requirements.

As Randy said, it comes down to a S&S decision.

Bringing this back to life. I am reviewing training and there is no mention of notice requirements for non-participating communities. Would record of borrower's acknowedgment of receipt still be required?

Thanks!

There is no exemption for not sending the notice to a potential borrower whose property is located in a SFHA in a non-participating community. In fact if you read the mandatory notice it has a specific section advising the potential borrower that the property is located in a non-participating community and that flood insurance is not available through the NFIP.

Thanks Dan. Would a lender be required to keep proof that the borrower received the notice? Such as certified mail receipt or a copy of the notice that the borrowe signed and dated?

Yes. You must have the borrower's acknowledgment they received the notice.

The only difference in the flood insurance process between a property located in a SHFA in participating community and one located in a SFHA in a non participating community is you don't have to require flood insurance on the property in the non participating community to make the loan. All other provisions will apply, including re-notification if you increase, renew/refinance or extend the loan.

what about private flood insurance - should you require flood insurance is a safety and soundness issue, but do you have to require private flood insurance in a non-participating community? my guess is no. confusion is the flood notice after giving the verbage about non-participating community, goes on in the next paragraph to discuss that private insurance MAY be purchased.

Requiring flood insurance in a non-participating community is a safety and soundness issue and becomes a loan agreement issue and not a regulatory one.