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#1933072 - 06/17/14 01:14 PM
Home not in Flood Zone, additional structures in f
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New Poster
Joined: Apr 2006
Posts: 8
TN
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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.
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#1933078 - 06/17/14 01:22 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Platinum Poster
Joined: Jan 2006
Posts: 642
Missouri
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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.
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#1933097 - 06/17/14 01:51 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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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.’’.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1933150 - 06/17/14 03:21 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Member
Joined: Sep 2011
Posts: 81
Florida
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Is there a notification requirement for the structure that is in the SFHA, if the bank is not requiring flood insurance?
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#1933162 - 06/17/14 03:44 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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10K Club
Joined: Jul 2001
Posts: 83,393
Galveston, TX
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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.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#1933172 - 06/17/14 03:58 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Member
Joined: Sep 2011
Posts: 81
Florida
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Thank you RL Carey. The notice includes language about mandatory purchase, so are we sending them mixed information?
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#1933194 - 06/17/14 04:19 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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10K Club
Joined: Jul 2001
Posts: 83,393
Galveston, TX
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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.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#1935367 - 06/25/14 12:40 PM
Re: Home not in Flood Zone, additional structures in f
Dan Persfull
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New Poster
Joined: Apr 2006
Posts: 8
TN
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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.
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#1935370 - 06/25/14 12:52 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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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.
Last edited by RR Joker; 06/25/14 12:53 PM.
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#1935375 - 06/25/14 01:01 PM
Re: Home not in Flood Zone, additional structures in f
RR Joker
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New Poster
Joined: Apr 2006
Posts: 8
TN
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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.
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#1935387 - 06/25/14 01:18 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Power Poster
Joined: Apr 2005
Posts: 3,663
TN
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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.
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#1935415 - 06/25/14 02:07 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Member
Joined: Jan 2014
Posts: 73
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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.
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#1935477 - 06/25/14 03:33 PM
Re: Home not in Flood Zone, additional structures in f
SMali
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Diamond Poster
Joined: Mar 2006
Posts: 1,323
"...Somewhere in Middle Americ...
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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!)
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#1935650 - 06/26/14 11:07 AM
Re: Home not in Flood Zone, additional structures in f
mmuina
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10K Club
Joined: Jul 2001
Posts: 83,393
Galveston, TX
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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.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#1936788 - 06/30/14 08:53 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Gold Star
Joined: Mar 2011
Posts: 476
SE, Nebraska
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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.
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#1943814 - 07/21/14 08:38 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Platinum Poster
Joined: Nov 2007
Posts: 767
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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).
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#1944267 - 07/22/14 07:48 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Gold Star
Joined: Mar 2011
Posts: 476
SE, Nebraska
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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
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#1944279 - 07/22/14 08:03 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Diamond Poster
Joined: May 2013
Posts: 1,783
The Mitten State
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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.
Last edited by JWills; 07/22/14 08:03 PM.
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#1944460 - 07/23/14 02:08 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Platinum Poster
Joined: Nov 2007
Posts: 767
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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.
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Comments are strictly my own and not that of my employer.
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#1944480 - 07/23/14 02:37 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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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.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1945233 - 07/24/14 04:04 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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Platinum Poster
Joined: Nov 2007
Posts: 767
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Thanks I agree, I totally wasn't thinking about how it would affect the mortgage division vs. internal portfolio loans.
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Comments are strictly my own and not that of my employer.
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#1946306 - 07/28/14 01:49 PM
Re: Home not in Flood Zone, additional structures in f
Dan Persfull
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Diamond Poster
Joined: May 2013
Posts: 1,783
The Mitten State
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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. I should have said that Dan was my fellow BOL'er who gave me the info. As always, thanks Dan.
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Nonsense wakes up the brain cells.
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#1953311 - 08/14/14 09:59 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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New Poster
Joined: Jan 2013
Posts: 15
Wisconsin
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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.pdfI'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?
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#1953320 - 08/14/14 10:22 PM
Re: Home not in Flood Zone, additional structures in f
mmuina
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10K Club
Joined: Jul 2001
Posts: 83,393
Galveston, TX
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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.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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