I have a situation where the bank had the third party flood vendor do a flood determination and found the property was in a SFHA. The borrower did not obtain flood insurance and the bank did not force place it. The file also documents a separate flood determination that was done by the bank stating the property was not in a flood zone based on its own map review. Would this second determination be acceptable? The bank lists itself as the preparer on the SFHDF. The loan has since paid down and the bank does not want to pursue flood insurance since the borrower now has a terminal illness. Thoughts? Thank you.

While you never want to violate the law willfully, this would be a case where I'd be tempted to let sleeping dogs lie.

I would verify that it is in the SFHA. Likely that will be the case.

If you don't want the negative reaction from the customer, consider the cost of insurance and the loan balance. Consider the risks and the likelihood of the property flooding and with that, a widow asking how this could happen and why the bank was wrong in its evaluation.

How likely is any scenario? What risks will you accept including a regulatory review. Then react accordingly. That may be as Richard noted, the bank eating the cost of the policy or telling the customer it is their property and unavoidable.

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

Ultimately, whether or not the bank contracts with a third party vendor, the bank itself is responsible for making the flood determination. Back in the day, as my daughter calls it, we all used flood maps and did our own determinations. So the answer to your first question of whether the determination completed by the bank itself is acceptable is "Yes" (provided, of course, that it is accurate). So the bigger question is "Which determination is accurate?" The one from the determination firm is not automatically deemed to be more accurate than the one from the bank. In fact, especially in cases where the flood line might cross a particular piece of property but not include the improved structure, I've witnesses flood determination firms making inaccurate calls - they tend to call the property in if any part of the property is in the flood zone. So it may be that your lender looked at the map and looked at the survey and determined more accurately that the property was not in the flood zone.

I would respectfully disagree with Richard in this case. I don't think the best course is to leave this alone. As Andy says, investigate further to determine which determination is accurate. If the one that puts the improvements in the flood zone is accurate, then you must require flood insurance. Whether you eat the cost of the flood insurance or pass it on will have to be a PR and customer relationship call. But remember, there is always the possibility that the bank-completed determination is the accurate one and you will not need to take any further action.

------------------
Jim Bedsole, CRCM, CBA, CFSA

Opinions expressed are my own, and do not necessarily reflect those of my employer.

I can't disagree with Andy or Jim on this one. You could always require insurance on a close call, or you could rely on the bank's determination and do nothing.

Should the note provide that the borrower's death is an event of default, not an uncommon provision, the lack of insurance would be a short-lived problem.

Jim gives an excellent analysis on this one. It is not an issue you can ignore, because the bank will be the insurer. However, my first thought is that the property probabaly has a corner in a flood zone and then the question is the location of the improvements. It is the improvements that flood hazard insurance is concerned with. I would check the flood map to see if this is the case.

It may also be a good idea to let the borrower know that part of the property is in a flood zone so that they realize the level of risk. However, if the improvements are not in the flood zone, the decision about purchasing flood insurance is the borrower's.

Angela, I'm a little late but maybe this will still be helpful. The original determination provided by your flood vendor was probably computer generated. It sounds like you have information that only a portion of the property is in a required zone. I would contact the flood vendor and ask them to research the determination further. This will prompt the vendor to study the actual flood map, and if they can determine that the improvements are not in the flood zone they may change the determination. The vendor will probably request some additional documentation such as a site map or survey.

------------------
The opinions expressed here are my own and do not necessary reflect those of my employer.

Angela, Assuming the propety is in a flood zone and there was a flood, the lender could be liable for not notifiying the borrower that they needed to purchase flood insurance.