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#1497987 - 01/20/11 08:41 PM Flood Determination Required?
Raquel Offline
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Joined: Aug 2007
Posts: 128
If during the term of a loan a lender adds a security interest in real property with a structure either as additional collateral or a substitution of collateral, is there a requirement to determine if the structure is in a flood zone? This circumstance does not appear to be Making, Increasing, Renewing or Extending a loan and does not appear to be a tripwire during the life of the loan either.

Am trying to determine if obtaining a determination would be a requirement or a prudent procedure.

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Flood Compliance
#1498044 - 01/20/11 09:09 PM Re: Flood Determination Required? Raquel
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,225
Galveston, TX
41. Does the Regulation apply where the
lender takes a security interest in a
building or mobile home located in an
SFHA only as an ‘‘abundance of
caution’’?

Answer: Yes. The Act and Regulation
look to the collateral securing the loan.
If the lender takes a security interest in
improved real estate located in an
SFHA, then flood insurance is required.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#1498516 - 01/21/11 05:09 PM Re: Flood Determination Required? rlcarey
Raquel Offline
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Joined: Aug 2007
Posts: 128
Thank you for replying. I had found that and was viewing that as a situation in which there was a MIRE circumstance where a determination was required. My inquiry was regarding a non-MIRE circumstance and not necessarily an ABC situation such as a substitution of collateral at a borrower's request. If it is not a MIRE transaction, is there anything to compel a determination so that you would know if the property was in a SFHA.

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#1498528 - 01/21/11 05:19 PM Re: Flood Determination Required? Raquel
Irishguy Offline
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Irishguy
Joined: Aug 2008
Posts: 613
Kentucky
I believe Randy is correct. You are taking a security interst in improved real estate. I understand that if you are trying to make this work with the MIRE acronym, your situation does not really fit into making, increasing, renewing or extending.

In the Lender's responsiblity section of FEMA's Mandatory Purchase of Flood Insurance Guidelines, it says that "the statutory requiremetns apply when improved real property (that is, a building) or manufactured (mobile) home is taken as security for a loan."

I think FEMAs wording is fairly clear here. But that is just my opinion.

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#1498573 - 01/21/11 05:47 PM Re: Flood Determination Required? Irishguy
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Quote:
and does not appear to be a tripwire during the life of the loan either.


Any time you become aware that your loan becomes secured by a building then that is a tripwire (see page 54 of the Mandatory Purchase Guidelines) requiring you to follow the flood insurance guidelines.

Also:

Sec. 339.6 Required use of standard flood hazard determination form.
(a) Use of form. A bank shall use the standard flood hazard determination form developed by
the Director of FEMA (as set forth in Appendix A of 44 CFR part 65) when determining
whether the building or mobile home offered as collateral security for a loan is or will be
located in a special flood hazard area in which flood insurance is available under the Act.
The standard flood hazard determination form may be used in a printed, computerized, or
electronic manner.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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