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#2259791 - 09/16/21 04:47 PM Notice of Special Flood Hazard - Timing
Anonymous
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Reviewing loan file as part of internal flood audit. Property is in a flood zone, we know this as we have had prior loans on the property. Borrower requests for new loan secured in part by this property located in a flood zone, the required Notice of Special Flood Hazards is given to the borrower and signed/obtained for loan file, and then several months later the loan closes. I'm not sure of the specifics, as to why this transaction took so long to close (I will inquire with the LO/staff about that issue), but I'm questioning from a compliance standpoint, if this would be considered giving the required flood notice "timely"? I believe the requirement says the notice "must be given within a reasonable time before completion of the transaction." Notice was given before completion of the transaction, but I'm doubting this would be considered reasonable in the eyes of an examiner, and I've never seen this in any of our loan files prior. Should a violation be cited? Thoughts?

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#2259793 - 09/16/21 04:52 PM Re: Notice of Special Flood Hazard - Timing Anonymous
raitchjay Offline
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Generally speaking, the flood notice needs to be given as soon as possible, not as late (close to the loan date) as possible.
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#2259795 - 09/16/21 05:14 PM Re: Notice of Special Flood Hazard - Timing Anonymous
raitchjay Offline
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The flood notice is basically saying "hey borrower, you must purchase flood insurance before this loan can close". There's really no logical reason why you'd delay giving it until close to your loan date. You want them to know as quickly as possible that they are required to purchase flood insurance on the property.
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#2259796 - 09/16/21 05:34 PM Re: Notice of Special Flood Hazard - Timing raitchjay
Anonymous
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Thank you. So even providing the required flood notice almost 7 months prior to closing wouldn't be a problem/violation? Again, I don't yet know why this loan process drug out for so long, as this is not typical for us. Flood notice was definitely given very early on in the process, and it took quite awhile later before the loan actually closed.

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#2259797 - 09/16/21 05:50 PM Re: Notice of Special Flood Hazard - Timing Anonymous
raitchjay Offline
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It wouldn't raise any red flags for me on the flood front. Reg. B concerns...maybe, depending on what you find for the reason for the delay in loan closing.
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#2259798 - 09/16/21 06:02 PM Re: Notice of Special Flood Hazard - Timing Anonymous
rlcarey Online
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I agree - your focus is in the wrong area on this one.
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#2259801 - 09/16/21 06:40 PM Re: Notice of Special Flood Hazard - Timing Anonymous
Skittles Offline
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My only thought on the flood determination being pulled 7 months prior to loan origination is you might want to verify the maps haven't changed during that 7 month period. While the chance may be slim - there is still a chance.
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#2259826 - 09/17/21 02:26 PM Re: Notice of Special Flood Hazard - Timing Anonymous
Anonymous
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A new responder says: I agree with the other responses above, but wanted to elaborate that the meaning of "reasonable time before completion" means "not too short a time before loan closing." It has never been interpreted as "not too long a time before loan closing."

10 days before loan closing is reasonable adequate advance notice (and was actually the minimum number of days before closing, until a rule change in 2014 changed it from "10 days notice" to "reasonable notice"); likewise 10 months before loan closing is reasonable (as long as maps haven't changed, for instance, changing the same property from one zone to a different zone).

The intent behind "reasonable" is that it would unreasonable to wait until the morning of the closing to notify the borrower; the borrower is supposed to be given a reasonable number of days to find the flood insurance available and purchase it. It would not be reasonable to only give them 24 hours, etc. I don't think an auditor would need to waste time on why an extra amount of time was given to the borrower - that's far outside the intent of the rule - nor on why it took a given loan a long time to close, particularly if it's an isolated incident and there was no complaint by the borrower.

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#2260195 - 09/24/21 03:18 PM Re: Notice of Special Flood Hazard - Timing Anonymous
Anonymous
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Another Anon....
Regarding the word "reasonable". Using that term leaves a lot of room for interpretation. In legal circles, the term used is, how a reasonable person would view the issue. I fully believe that was the intent when this law was written. To leave it subject to each and every situation. Yet, I continue to hear, lock step viewpoints that it's 10 days or it's late. I also think that the 10 day viewpoint is for those customers who had no idea the building is in a flood zone. Ten days gives them time to go get insurance. Yet 99% of our flood loans are home rentals where the customer often refinances the same house. Flood insurance is already in place and won't expire for another six months. Yet we get written up for having them sign the notification at closing. It's a formality. It's also reasonable in this situation. I'm tired of having this argument with auditors and examiners with this idea of "10 days or its late". I sure wish they would get with FEMA and have them articulate these situations, and give us a break. We're managing risk just fine.

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#2260199 - 09/24/21 03:27 PM Re: Notice of Special Flood Hazard - Timing Anonymous
rlcarey Online
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Not to be picky, but what does FEMA have to do with the requirement that a lender has to deliver this notice?

The biggest agency that continues to push this is the FDIC because they insist on maintaining this in their exam manual:

The Agencies generally regard ten days as a “reasonable” time interval.
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#2260247 - 09/24/21 08:35 PM Re: Notice of Special Flood Hazard - Timing Anonymous
Andy_Z Offline
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Could the flood zone change in 7 months, certainly. But while zones change, it is not a frequent issue. And since the bank already knew it was in a SFHA, that was in sync with prior designations. The bank could easily do a reverification to confirm its prior findings just by looking for a map change. An active loan would have included this anyway if it had LOL coverage.
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