Have you ever been confused about if or when you could rely on a previous flood determination form? If so, you’re not alone. To put it simply, if you meet the following conditions, you can rely on a previous flood determination for subsequent loans:
David explains more in the video.
Hi Dave Dickinson with Banker's Compliance Consulting and want to talk about flood insurance and specifically relying on a previous flood determination form. Now there's a lot of confusion out there about when can you rely upon a previous determination and first off, let me tell you, go to our website and go to the tools, the free downloadable tools, there's an article called Reliance on a Previous Flood Determination that spells out all these details. I support it with the law, the regulation, and the FAQs. But in short, anytime that you already have a flood determination and there are three conditions that are met, it's less than seven years ago, there have been no map changes, at least that flood determination still references the current map and date for that property of course, and then three, it had to be on the flood determination form itself. If you can say yes, yes, yes to those three questions, you can use that flood determination for subsequent loans.
So imagine that I did a 30-year loan with you and now I come in five years later and I'd like to refinance that. Can you take that determination out of the loan A file and put it with the loan B file? Again, if those three conditions ... it's going to be on the flood determination form, it's going to be less than seven years. And that example I just gave, but is that map still current? Okay. If that map is the effective date, everything is the same, that what you'd fill out today would be what you'd filled out five years ago. The answer is yes, you can rely upon that.
So where's the confusion here? Well, FEMA used to publish a book called The Mandatory Purchase of Flood Insurance Guidelines, and in those guidelines, they incorrectly stated that if you made a new loan, you had to do a new flood determination. Now what's interesting is we have an FAQ, the FFIC got together, the frequently asked question number 68 specifically addresses this and says, "You can rely upon a previous flood determination." So from a regulatory standpoint, no question.
Now is this prudent? That's something you may want to think about because how do you know if there's been a map change? Most flood determination companies will do recertification for you for a dollar or two or maybe even free, so maybe procedure wise you to say, "Listen, we want to know for sure. We don't want to take a chance. Let's just always recertify." And that's not a bad rule to have. But if an examiner is trying to cite you because you refinanced or made a subsequent loan and relied upon a previous determination, I don't believe that's possible, you have to check that out.
Now I'm going to throw in one more thing. How about your contract if you are using a flood vendor, which most of you probably are, do they allow you to take their flood determination out of loan A and put it with loan B? In a sense, you're only paying for one, for a subsequent loan. So that might be something you'll want to consider as well as there's a contractual issue here. It's not a regulatory issue but a contractual issue that you might be violating your contract with your flood vendor. So lots of things to consider. The prudent and the safest way would be to always do a new flood determination, but possibly you don't need to. I want you to be informed. Hey, thanks for listening.