In a loan file requiring flood insurance there is a quote on a flood premium, and a binder dated 5/16/08 stating insurance was pending, with an effective date of 6/16/08. The note date is 6/5/08. I'm looking at Appendix 6 in the Guidelines and see that (under B.2.Effective Date) flood insurance "shall be effective at the time of loan closing, provided that the policy is applied for and the presentment of premium is made at or prior to the loan closing." It seems that the ins agency may have errored, since the 30 day wait period does not apply when making, increasing, renewing or extending. Obviously the insurance was applied for prior to closing. The lender is working on verifying that the premium was paid prior to closing and clarifying the effective date. If the premium was not paid prior to closing I would say this was in violation. If the insurance was paid, and the effective date is correct, then I would say there is a violation since coverage was not in place prior to closing. Thoughts anyone?

First, there can't be a "binder". Flood insurance can't be bound.

Second, you are correct there is no 30 day wait. This loan should not have been closed. I agree with your thoughts.

You have a violation.

First, since the binder apparently and clearly identified the effective date of the policy as 6/16/08 you knowingly closed a loan without insurance in place.

Second, you did not properly verify insurance before closing the loan; a binder is not acceptable proof of flood insurance.


From page 26 of the Mandatory Purchase Guidelines:

Acceptable proof of coverage may be a copy of the Flood Insurance Application and premium payment, or a copy of the Declarations Page. The NFIP does not recognize binders or certificates of insurance.

Thank you Dan and David!

This loan was actually renewed with the lender relying on the previous determination (on a SFDF, no map changes and within 7 yrs). Even though a lender relies on a previous determination, if in a flood zone isn't a notice to borrower still required?

Yes, the notice is still required.

Then why wasn't there a current policy already in place?

The first situation I described was actually the original loan. The loan matured, was rewritten with the lender relying on the previous determination.

Can you explain why flood insurance can't be bound? Should there always be an application for flood insurance that the agency completes (and should be able to provide a copy), prior to issuing a binder which is apparently really worthless?

From the last sentence on page 26 of the MPFIG:
"The NFIP does not recognize binders or certificates of
insurance."

And from page GLS-1 (the Glossary):
Binder or Certificate of Insurance. A temporary agreement between company, producer, and insured that the policy is in effect. Binders and certificates of insurance are not permitted under the NFIP.

No I can't and yes there should always be an application for a new policy. It's a requirement of the NFIP.

FWIW, I attended a flood seminar recently with a rep. from FDIC. As stated above, she stated a flood insurance binder was not sufficient. They would be looking for either a declaration page from the policy or an application and paid receipt/cancelled check as proof of purchase.