We have recently pulled a flood that shows the customer's home in Flood Zone X but shows the shed and barn in Flood Zone A. Can we specifically have our mortgage read to exclude the barn and shed to avoid the flood insurance requirement.

As long as your legal description doesn't take the dirt underneath the shed and barn, yes, you can. What we've been shown / told by the OCC is that if you have the dirt under an improvement, you have the improvement and would need flood insurance, if in a zone requiring it.

I doubt that's Missouri only, but I'd double-check your own state's rules.

Under the new law signed 3/21/2014 you would not need to require flood insurance for these buildings.

The Homeowners Flood Insurance Affordability Act of 2014

SEC. 13. EXCLUSION OF DETACHED STRUCTURES FROM MANDATORY
PURCHASE REQUIREMENT.
(a) EXCLUSION.—Subsection (c) of section 102 of the Flood Disaster
Protection Act of 1973 (42 U.S.C. 4012a(c)) is amended by
adding at the end the following new paragraph:
‘‘(3) DETACHED STRUCTURES.—Notwithstanding any other
provision of this section, flood insurance shall not be required,
in the case of any residential property, for any structure that
is a part of such property but is detached from the primary
residential structure of such property and does not serve as
a residence.’’.

Is there a notification requirement for the structure that is in the SFHA, if the bank is not requiring flood insurance?

I would continue to supply the notice informing them that their property is in a SFHA. I see no waiver of the notice within the new legislation.

Thank you RL Carey. The notice includes language about mandatory purchase, so are we sending them mixed information?

Maybe, but more importantly you are putting them on notice of the risks that are present. Depending on the value of the structures, banks may choose to continue to require insurance anyway.

Dan, what if we have an existing loan that carries flood insurnace on the barn only? With this new law can the customer drop the flood insruance requirement on the barn? The barn is the only structure in the flood zone.

I would suggest you (the bank) not be the one to suggest this. If they choose to not renew next time, you can make the choice as to whether you want it or not, assuming this barn is an outbuilding on a residential property.

I'd want FI on my barn if needed...to be quite honest.

He is the one that suggested it unfortunately. He doesn't know about the new law, but we did require it at closing. He wants to know if he can self-insure by dropping his flood insruance and keep the moeny in a CD.

Admittedly I haven't really dug into this very much, but if it were me, I wouldn't allow him to drop it just yet. While the Homeowners Flood Insurance Affordability Act of 2014 allows for exemption of detatched structures, it really doesn't go into detail about what they meant (at least from what I could find). My personal opinion is they were really looking at sheds and such on small parcels of residential properties. I don't necessarily believe that Congress intended to exclude barns and the like from large parcels of land that are really agricultural properties that happen to have a house located on them.

If it were me, I would wait until we get more guidance from the regulators on this and continue to require the insurance.

Just my 2 cents.

I spoke with someone from the FDIC last week. We have some homes with detached garages that now under this rule the borrower would not be required to carry flood insurance anymore because the house is not in a flood and the garage is. However, we have a commercial customer where the main building (large apartment complex) is not located in the flood but a storage shed/garage on the property is. Their guidance was to continue to require flood on the shed. They felt the rule was geared toward 1-4 family residential. I would check with someone before I didn't require it.

We have a couple of loans on 1-4 families where only the garage is in the special zone. The struggle with some of these is that the garage is really something. It's part of the value of the house and it's sitting in the AE part of the parcel. (My house is the same way...but I don't have one of those 4-6 car, brick/stone beauties!)

I only say this about once a month. If I was a bank and any part of the property was in a flood zone, maybe unless my borrower had excess assets that losing the property would be no big deal or the garage was 25-30 ft in elevation below the house, I would require insurance on everything of any value. Floods do not stop at some imaginary line between a garage and a house. You would be better off letting them drop their fire insurance.

We have this same scenario on a loan we are hoping to close soon. The home was in a flood zone but obtained a LOMA for just the home. They also have 2 detached structures on the property, one they also have an elevation certificate on but ave not requested a LOMA yet. We would like to not require flood insurance on these detached structures as they are elevated above the BSE and the loan is well secured even without these structures. But we have had a flood CMP in the past and are hestitant to rely on this without guidance to support it. I have sent an email to our FDIC examiner and am waiting on a reply before we proceed. We just cannot afford the risk.

This is from the Kansas City FDIC June 2014, Flood Insurance
Contents Coverage and General Best Practices Document:
"Detached Structures
Certain detached structures are excluded from the mandatory flood insurance purchase requirements. Flood insurance is not required for any structure that is part of a residential property but is detached from the primary residence and does not serve as a residence."

I don't see how it can be any clearer. The law is the law. Safety and Soundness not withstanding.

Dani - your reference to Barns and the like, is valid if you have an AG loan with a house. But if you have a residential loan on an Acreage that has barns on it, the new law exempts the barns. At least if I were king, that's what I would rule.

In looking at the Act Section 13--if I understand this correctly, it states that RESPA is amended to include a notice to borrower that although lender may or may not require coverage on a detached building that in the event of a flood it is the consumers loss. Where exactly is the notice supposed to go?


SEC. 13. EXCLUSION OF DETACHED STRUCTURES FROM MANDATORY
PURCHASE REQUIREMENT.
(a) EXCLUSION.—Subsection (c) of section 102 of the Flood Disaster
Protection Act of 1973 (42 U.S.C. 4012a(c)) is amended by
adding at the end the following new paragraph:
‘‘(3) DETACHED STRUCTURES.—Notwithstanding any other
provision of this section, flood insurance shall not be required,
in the case of any residential property, for any structure that
is a part of such property but is detached from the primary
residential structure of such property and does not serve as
a residence.’’.
(b) RESPA STATEMENT.—Section 5(b) of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2604(b)) is amended—
(1) in paragraph (14), by inserting before the period at
the end the following: ‘‘, and the following statement: ‘Although
you may not be required to maintain flood insurance on all
structures, you may still wish to do so, and your mortgage
lender may still require you to do so to protect the collateral
securing the mortgage. If you choose to not maintain flood
insurance on a structure, and it floods, you are responsible
for all flood losses relating to that structure.’ ’’; and
(2) by transferring and inserting paragraph (14), as so
amended, after paragraph (13).

Still Smiling,
I believe it goes here: top left of page 1401 (after paragraph 13) in the referenced URL below. I think this is information that ends up in the old HUD booklets that are now published by the CFPB. Not waiting for that booklet to be reprinted, we would simply ensure that we give the customer a copy of this text in a memo form to ensure we demonstrate an attempt to comply with the law. (never mind the regs aren't written yet.)
http://www.gpo.gov/fdsys/pkg/USCODE-2011-title12/pdf/USCODE-2011-title12-chap27-sec2604.pdf

But you need to check to see if your secondary markets still require it. I could find nothing in FM land in regards to not requiring it, so for now, we will still require it on all structures. This was also backed up by a fellow BOLer.

Thanks for responding. I knew there has been question as to whether the agencies were going to issue additional rules on this, so I contacted our FDIC examiner and was told that FDIC considers this final and doesn't plan to issue any additional rules.

You mentioned that you will provide notice as a seperate memo; will you provide it with pre-disclosures?

Providing it with pre-disclosures doesn't seem correct since at that point you may not even know if the property is in a flood zone.

Regardless what the FDIC says or the Law says you have to follow JWills advice and consult your investors. Freddie has not updated their sales and servicing manuals or issued any bulletins addressing the issue therefore their sales and services guidelines still require flood insurance on all buildings located in a SFHA. If you want to sell to Freddie, or any other investors for that matter, you have to follow their guidelines and they are free to impose stricter guidelines then the law requires.

Thanks I agree, I totally wasn't thinking about how it would affect the mortgage division vs. internal portfolio loans.

I should have said that Dan was my fellow BOL'er who gave me the info. As always, thanks Dan.

Just to revive this a little, it looks like Freddie has mentioned this in a recent bulliten. I'm not versed in the Freddie world completely, but wanted to pass this along.

http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1415.pdf

I'm still a little hesitant to let residential customers start dropping their flood insurance on non-attached buildings though. Investor requirements aside, Section 13 of the Flood Insurance Affordability Act of 2014 seems to directly disagree with the Interagency Flood Q&A.

Any one else have any thoughts?

Section 13 of the Flood Insurance Affordability Act of 2014 seems to directly disagree with the Interagency Flood Q&A.

That is because the FAQs preceded the law and has yet to be updated. It is a safety and soundness issue and no one says that you let customer drop their insurance. Suggesting that they do would be even more ridiculous.