Q: We were told at a previous webinar that if the flood zone on our flood certificate and the flood zone from the certificate pulled by the flood insurance company do NOT match, they have an obligation to comply with the highest or worst zone. However, if they do not, we will be covered by showing due diligence that we asked them to change it and document the file as such. Is this correct?
A: Questions and Answers #71 and #72 from the Interagency Questions and Answers Regarding Flood Insurance discuss expectations of lenders in the case of zone discrepancies. Lenders should review these Q&As closely to ensure full compliance. In summary, a lender should only be concerned if the discrepancy is between a high-risk zone (A or V) and a low- or moderate-risk zone (B, C, D, or X). If the flood insurance policy shows a lower risk zone than the Standard Flood Hazard Determination Form, the lender should investigate the discrepancy. A lender should determine if the “Grandfather Rule” applies, which in some cases allows a borrower to benefit from a prior, more favorable rating. A discrepancy resulting from the Grandfather Rule is reasonable and acceptable, but should be documented and substantiated by the lender.
If a zone discrepancy appears to be the result of a mistake, a lender should recheck its determination. If there still appears to be a discrepancy after the recheck, a lender and borrower may jointly request that FEMA review the determination obtained by the lender. FEMA will only conduct this review if the request is submitted within 45 days of the date the lender notified the borrower that the building is in a SFHA. If the discrepancy is not resolved or the borrower, insurance company, or insurance agent is uncooperative in assisting the lender, according to the answer to question #71, “the lender should notify the insurance agent about the insurer’s duty pursuant to FEMA’s letter of April 16, 2008 (W–08021), to write a flood insurance policy that covers the most hazardous flood zone. When providing this notification, the lender should include its zone information and it should also notify the insurance company itself. The lender should substantiate these communications in its loan file.”
– This Q&A was included in the materials from the FDIC New York Region Regulatory Teleconference: “Flood Insurance – Flood Insurance Compliance and an Examiner’s Perspective” which took place on December 3, 2012. These materials may be found here: https://www.fdic.gov/news/conferences/NY/2012-12-03.html