Flood insurance

Flooding is the most common natural disaster that occurs in the United States. In historically flood-prone regions, this can lead to increased risks for both buyer and lender. To help protect property owners against losses, the National Flood Insurance Program was founded in 1968 through the National Flood Insurance Act as an alternative insurance option for communities located in federally designated flood plains. For lenders, the Flood Disaster Protection Act of 1973, later reinforced by the 1994 Reform Act, required federally-regulated and federally-insured lenders to monitor and mandate flood coverage on properties throughout the entire term of the loan.

As a result, compliance does not end at loan closing – it’s an ongoing process for as long as the loan exists. This impacts any and all loans (including second mortgages and equity lines) secured by a property determined to be in a Special Flood Hazard Area. That means a lender must determine if a property is in a SFHA at the time of loan closing, while also periodically checking for changes to the property’s flood zone designation.

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