Int Q&A - Applicability 3 – What are a lender’s requirements under the Regulation for a loan secured by multiple buildings when some of the buildings are located in an SFHA in which flood insurance is available and other buildings are not?

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Q:  APPLICABILITY 3. What are a lender’s requirements under the Regulation for a loan secured by multiple buildings when some of the buildings are located in an SFHA in which flood insurance is available and other buildings are not? What if the buildings are located in different communities and some of the communities participate in the NFIP and others do not?
 
A:   A lender must determine whether a building securing the loan is in an SFHA. In cases in which the loan is secured by multiple buildings and some of the buildings are located in an SFHA in which flood insurance is available under the Act, but other buildings are not located in an SFHA (or are located in an SFHA, but not in a participating community), a lender is required to obtain flood insurance only on the buildings securing the loan that are located in an SFHA in which flood insurance is available under the Act. For example, assume a loan is secured by five
buildings as follows:

• Buildings 1 and 2 are located in an SFHA and the community participates in the NFIP;
• Building 3 is not located in an SFHA; and
• Buildings 4 and 5 are located in an SFHA, but the communities do not participate in the NFIP.

In this scenario, the lender is required to obtain insurance only on buildings 1 and 2. As a matter of safety and soundness, however, a lender may decide to require the purchase of flood insurance (from a private insurer) on buildings 4 and 5 because these buildings are located in an SFHA. In addition, depending on the risk factors of building 3, the lender may elect to require flood insurance as a matter of safety and soundness, even if the building is not located in an SFHA.

Further, if any portion of a building is located in an SFHA in which flood insurance is available under the Act, the flood insurance requirement applies even if the entire structure is not located in the SFHA. However, a building located on a portion of a plat or lot that is not in an SFHA is not subject to the mandatory flood insurance purchase requirement even if a portion of the plat or lot not containing a building extends into an SFHA.
 
 
ADDITIONAL INFORMATION:
This Q&A was included in the Interagency Questions and Answers Regarding Flood Insurance, which were issued on 05/11/2022.  They were published in the Federal Register on 05/31/2022 and may be found here:  https://www.federalregister.gov/documents/2022/05/31/2022-10414/loans-in-areas-having-special-flood-hazards-interagency-questions-and-answers-regarding-flood
 

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