Flood Insurance FAQ

Flood insurance is a specific type of insurance coverage that protects property (real and personal property) against damages incurred related to flooding.

Flood insurance requirements are based on the Standard Flood Hazard Determination FEMA Form 086-0-32 (formerly FEMA Form 81-93). The mandatory purchase of flood insurance requirements are set forth by the National Flood Insurance Program (NFIP).

Yes.

If any portion of a building that is collateral for a loan is located in a special flood hazard area, the borrower must supply flood insurance for the building under the National Flood Insurance Program (NFIP).

If any equipment, machinery, furniture, fixtures or inventory that is collateral for a loan (“personal property collateral”) is in a building, any portion of which is located in a special flood hazard area, the borrower must supply flood insurance for the personal property collateral under the NFIP.

No.

Insurance companies typically consider water damage to occur when water damages a home or structure before the water comes in contact with the ground, such as when a hailstorm or heavy rain causes damage to a building.

Flood damage is considered by insurance companies to have occurred when water has been on the ground at some point before damaging a property, such as when a nearby creek or river overflows.

The mandatory purchase of flood insurance requirements as set forth by the National Flood Insurance Program, apply with equal force to condominiums and cooperative units. Policies for such units will consist of separate policies obtained by the individual unit owner for a particular unit and the condominium or cooperative association for the exterior and common areas of the building.

If you believe the property was incorrectly included in a National Flood Insurance Program (NFIP) identified Special Flood Hazard Area (SFHA), you may submit an application to FEMA for a formal determination of the property's location and/or elevation relative to the SFHA. After FEMA reviews the map change request, it will issue a Determination Document, either approving or denying the map change. If FEMA grants the map amendment or revision request, the property owner may no longer be required to pay flood insurance. The property owner should send a copy of the Determination Document to the Lender. Please see FEMA.gov for more information.

You can request FEMA make an official determination regarding the location of the building and improvements on the real property relative to the identified Special Flood Hazard Area (SFHA). You will need to submit certain property and elevation information to FEMA and request that FEMA issue a Letter of Map Amendment (LOMA) (if your property is located on natural ground) or a Letter of Map Revision Based on Fill (LOMR-F) (if your property has been elevated above the base flood by the placement of earthen fill). Please see FEMA.gov for more information.

Flood Insurance Coverage must be in an amount equal to the lesser of the insurable value of the property or the maximum limit of coverage available.

Many flood insurance related questions may be answered by visiting FloodSmart.gov.

Borrowers who fail to maintain required flood insurance for the term of a loan are ineligible for any future US Small Business Administration assistance and/or services.

The Lender may pay the necessary premiums (but has no obligation to do so) and the Borrower will reimburse the Lender on demand for any premiums paid. The failure to pay all premiums when due or take any actions to keep the flood insurance policy in full force and effect until the entire principal amount of principal and interest due upon the loan has been paid in full can be considered an “event of default” under the relevant loan documents. As a consequence, the Lender may declare the entire principal of the loan as due and payable.

The Lender may purchase flood insurance on the real property and/or the personal property collateral. The amount of insurance will be in an amount equal to the lesser of the insurable value of the property or the maximum limit of coverage available. The expense of the policy purchased will be added to the loan as an incurred fee. The failure to pay all premiums when due or take any actions to keep the flood insurance policy in full force and effect until the entire principal amount of principal and interest due upon the loan has been paid in full can be considered an “event of default” under the relevant loan documents. As a consequence, the Lender may declare the entire principal of the loan as due and payable.

The policy owner must provide the Lender with a binder and evidence of insurance which sets forth the insured’s name, insured property address, coverage insured (real property and/or personal property), coverage amount and flood zone designation. The policy owner must also provide evidence the premiums have been paid for a period of thirty (30) days and the policy is in full force and effect at the time of closing.

Yes. The Lender must be listed as “Mortgagee” in connection with real property collateral and “Lender Loss Payee” in connection with personal property collateral. The clause must provide that any action or failure to act by the borrower or owner of the insured property will not invalidate the interest of the Lender.

The policy owner must notify the Lender of this change. The policy owner will need to provide the Lender with the new binder and evidence of insurance which sets forth the insured’s name, insured property address, coverage insured (real property or personal property), coverage amount and flood zone designation, as well as evidence the premiums have been paid for a period of 30 days and that the policy is in full force and effect.

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