Flood Insurance Requirements for Lending
Institutions
Basic Requirement
Flood insurance, either issued through the NFIP or from
a private insurance provider, is required for the term of
the loan on buildings or mobile homes when an
institution makes, increases, extends or renews a
designated loan, meaning all three of the following
factors are present:
• The loan (commercial or consumer) is secured by
improved real estate or a mobile home that is affixed to a
permanent foundation (security property);
• The property securing the loan is located or will be
located in an SFHA as identified by FEMA; and
• The community in which the property is located
participates in the NFIP.
The FDPA provides that a regulated lending institution may
not make, increase, extend, or renew any loan secured by
improved real property that is located in an SFHA unless the
improved real property is covered by the minimum amount
of flood insurance required by statute. This includes
situations where a security interest in improved rea property is taken only “out of an abundance of caution.â€
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