Evidence of flood insurance

Sorry if this subject was addressed previously,but I couldn't find it in my search. At a flood insurance seminar I attended a few months ago, I was told that a financial institution can close on a loan secured by a property in a flood area without having an actual flood insurance policy in hand but only having an application for the purchase of the flood insurance, indicating that the full premium has been paid. Does anyone know if this is permissible under the flood regulation and if so where does it clarify this within the Regulation?

It is permissable as long as you have a copy of both the app and proof of payment.

Unless the application says otherwise (watch out for agents that automatically check the 30 day waiting period box), the policy is effective as of the date of applicaation/payment.

Where in the flood insurance regulation does it state that proof of purchase of insurance is all that's needed before closing?

this should answer your question:
http://a257.g.akamaitech.net/7/257/2422/.../44cfr61.11.htm

but to address another point you mentioned, please ALWAYS ask the question. i am not fond of the "use the search option" responses i see here. more often than not the situation you are asking about is different than the one that was discussed here previously.

The FDIC has stated:

To avoid possible delays in the closing of the loans in areas having special flood hazards, a bank could accept as proof of flood insurance at the time of loan closings a copy of the flood insurance application indicating that the full premium has been paid, a copy of the mortgagor's check issued in payment of the premium, or the insurance agent's certification that the mortgagor has purchased the requisite flood insurance.

Randy's comment can be documented at the following link:

http://www.fdic.gov/regulations/laws/rules/2000-6100.html

Thanks Dan - I meant to provide the link and forgot.

what was wrong with my link that went right to the answer to the question?

Your link as I read it gives the information on when a policy becomes affective based on presentment of an application and payment of the premium. I may have missed it, but I did not see where it addressed the presentment of the application and proof of payment to the lender constituted proof of insurance. And as you know the different regulatory agencies interpret things differently. Randy and I simply provided FDIC's stance on the issue.

dan, i'm not sure i am catching the distinction you are making between when a policy becomes effective (covered) and proof of insurance. an effective policy IS proof of insurance.

(b) Where the initial purchase of flood insurance is in connection with the making, increasing, extension, or renewal of a loan, the coverage with respect to the property which is the subject of the loan shall be effective as of the time of the loan closing, provided the written request for the coverage is received by the NFIP and the flood insurance policy is applied for and the presentment of payment of premium is made at or prior to the loan closing.

perhaps i look at things from a different perspective given my line of work, but i would almost beg a regulator of ANY agency to disagree with the actual law here.

Again your cite goes into when the policy is effective. The question was can the lender accept a copy of the application and paid receipt as proof of coverage in lieu of having an actual copy of the policy.

Ron - That is why I (like Dan) cited the FDIC. After reading your post, it only dealt with the effective date of the insurance. As Dan said, determining the effective date of the insurance and what a can provide a bank as proof of insurance are really two different questions.

When I use Dan's link I see the entire Flood regulation, which is nice, but I'm having trouble pinpointing where in the reg it states what is acceptable as proof of insurance. Would someone please tell me where this is in the reg. I'm probably looking right at it and not seeing it. Thanks for your patience!

guys, can you explain the distinction you are making between proof of insurance and effective date of insurance? part of the effective date law i cited required a number of pieces of "proof" like the first payment, letters and other documentation.

Bville, open the document and search the document using the following search term "To avoid possible delays in the closing". You'll find it toward the end under the NOTE section.

Ron your document explains when a policy is effective based on certain documentation being presented to the NFIP. Your document does not state anything about what documents presented to the lender constitutes proof of coverage. This is one reason why the FDIC issued their "clarification" for a lack of a better term.

dan, i understand what you are saying, i just see very little if any practical difference. i am an academic/theoretician. you are pragmatic. i think i just like to bait regulators too much.

btw, my "document" is the actual law. if a policy is in existence, they can't zing you for non-compliance. or if they try to, i'll make them look bad.

Hi Ron, if there is a discrepancy between the flood zone indicated on the insurance application and the flood certificate, can the lender still accept.

I think not, but people are questioning.

Jim

i'm sorry, but if your policy is incorrect, it is ineffective. if you have proof of an effective policy, what else do you need?

i'm sorry but i must be missing something here. somebody help me out.


perhaps i assumed too much that if the underlying application was ineffective, the insurance requirement wasn't met. do people normally just say "hey we have a piece of paper that is called 'application for insurance', it must be good"?

I'm not sure what you are trying to get at here Ron. The regulation allows the lender to accept an application for insurance and a receipt showing the premium paid as proof of insurance in order not to delay the loan closing. Once the loan closes the lender still has a responsibility to follow up to insure they receive the policy, because theoretically the borrower could go back to the agent after loan closing and cancel the insurance application.

and then there would be an ineffective policy which is not allowed under NFIP (assuming that first payment means nothing)....

If you have the application and proof of premium payment, then at the time of closing you have proof of effective coverage. I still don't understand what tree you are barking up, or what other document you need to beleive that an application and proof of the premium being paid satifies the requirments for loan closing.

dan, in response to the intial question in this thread, i pasted a link that said, in part:

(b) Where the initial purchase of flood insurance is in connection with the making, increasing, extension, or renewal of a loan, the coverage with respect to the property which is the subject of the loan shall be effective as of the time of the loan closing, provided the written request for the coverage is received by the NFIP and the flood insurance policy is applied for and the presentment of payment of premium is made at or prior to the loan closing.

but i was told that wasn't true. i asked "how is what i said any different from what you posted from FDIC" because i didn't see any difference. essentially, it seemed like you said i wasn't saying enough when you just said what i had said was enough. it's like that fedex commercial where the boss says the same thing as the guy sitting at the table but moves his hands in a different way.

in other words, i didn't see the distinction between having an effective insurance policy and having proof of insurance: an effective policy IS proof of insurance.

Once again your statement Ron states when the initial purchase of the coverage is effective when the receipt of the request is received by the NFIP. It doesn't state what is acceptable proof of coverage the lender may accept in order to close the loan. The lender must either have a copy of an effective policy, or a copy of the application and paid receipt to document the policy is effective at loan closing. Nowhere did I see your comments address the lender's documentation requirement. Unless you just assumed the readers would know what they could accept by reading the cite you gave.

i think i'm just going to leave this alone. i'm not sure how an effective policy is not proof of insurance or how the app/first payment combo isn't an effective policy based on my link but i digress...

This will my last comment on the subject as well.

the coverage with respect to the property which is the subject of the loan shall be effective as of the time of the loan closing, provided the written request for the coverage is received by the NFIP and the flood insurance policy is applied for and the presentment of payment of premium is made at or prior to the loan closing

This is, IMO, addressing the policy is effective as of loan closing if written request is received by the NFIP AND the policy is applied for and paid for at or prior to loan closing. I still don't see where it tells the original questioner that a copy of the application and proof of payment is acceptable documentation for the lender to close the loan. And a lender cannot close a loan without proof of insurance. So what constitutes proof of insurance for the lender, either a copy of an effective policy or a copy of the application and proof of payment of the premium.

Argh.

With a small distinction, you are agreeing with each other.

A copy of the actual policy is not required at application because it takes a fair amount of time from the point of payment for the policy to be mailed and such a requirement would therefore prevent loans from closing for no real purpose.

A copy of the app and proof of payment constitutes both proof of insurance and proof of effective date as of the loan closing date, with a caveat from Dan that in year 3 (pick a number) of a 5 year loan the regulators are going to insist that you have an actual policy to prove the payment went through and the policy is actually in force (was not cancelled two months later, etc).

i guess i kept prattling on because i didn't think dan realized this.

I have 2 questions: We verify that the flood zones listed on the flood policy and the SFHD coincide. We are running into an issue where the determination and the policy are the same zone letter (ie: "AE" versus "A07"). We have been advised by the insurance agency that it makes no difference since the premium is the same. Can we accept policies with this kind of discrepancy?

Also, is a general change form with proof of premium payment acceptable evidence of flood coverage? If so, must we obtain the updated dec page at a later date?

Zone AE has replaced zones A1-A30, see below:

Flood Insurance Basics - Zones

Thanks for the info on the zoning issue....Based on the previous information supplied above, I guess I should assume that a general change form (to increase flood coverage) with proof of payment is acceptable evidence of adequate insurance coverage, however, is it necessary to implement a process/procedure to ensure that we obtain the updated dec page after loan closing?

IMO most definitely yes.