Full text of Federal Reserve Bank of New York Circulars : Flood Insurance Purchase Requirements

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL RESERVE BANK
OF NEW YORK
June 6, 1990

FLOOD INSURANCE PURCHASE REQUIREMENTS
Guidelines
To A ll State Member Banks
in the Second Federal Reserve D istrict:

The enclosed booklet, Mandatory Purchase of Flood Insurance Guidelines, published by
the Federal Em ergency Management Agency (FEM A), contains Federal Insurance
Administration Guidelines to address numerous questions that have arisen since the last revision.
The Guidelines interpret statutory provisions that, among other things, require lenders
to compel borrowers to purchase flood insurance as added protection for a loan where the security
consists of improved real estate or a mobile home that is located in a special flood hazard area
and is eligible for flood insurance under the National Flood Insurance Program (N FIP).
Where property is security for a loan and is located in a special flood hazard area, but
is not eligible for flood insurance under the N F IP , the lender must notify the borrower as to
whether Federal disaster relief will be available to the property in the event of a flood. The
lender must also notify the purchaser or lessee of the improved real property or mobile home,
in writing, of the special flood hazard to which the property

is exposed, or obtain satisfactory

assurances that the seller or lessor has provided such notification.
These Guidelines supplement regulations issued by Federal agencies to implement the
statutory requirements. They are designed to promote greater uniformity and understanding
of the flood-insurance purchase requirements among Federal agencies, private lending institutions
and their trade associations, and the public. Although the Guidelines are not binding on the
Federal agencies responsible for implementing the statutory provisions, the Federal Financial
Institutions Examinations Council cooperated in the revision of the Guidelines and has agreed
to disseminate them.
Questions regarding the Guidelines may be directed to the Compliance Examinations
Department of this Bank (Tel. No. 212-720-8136). A copy of the Guidelines brochure is being
sent to all member banks in this District; additional copies may be obtained directly from FEM A
by calling (202) 646-3484 or writing to FEM A , P.O. Box 70274, Washington, D.C. 20024.

Margaret E . B rush ,

Assistant Chief Examiner.

M h'A -ho ■
'

Federal Emergency Managem ent Agency

FEMA 186/October 1989

July 13, 1989

Federal Em ergency M anagem ent A g en cy

FEDERAL EMERGENCY
MANAGEMENT AGENCY
Federal Insurance Administration
MANDATORY PURCHASE OF
FLOOD INSURANCE
Guidelines
A g e n c y : Federal Emergency Management
Agency, Federal Insurance Administration

Action: Issuance of Guidelines
Summary: These Guidelines pertain to the
mandatory flood insurance purchase require
ments contained in Sections 102(a) and 102(b)
of the Flood Disaster Protection Act of 1973,
as amended, (codified as Sections 4012a(a)
and 4012a(b) of 42 USC), (Public Law 93234, 87 Stat.975), December 31, 1973, and
reflect experience gained by the Federal Insur
ance Administration (FIA) in its administra
tion of the National Flood Insurance Program
over the past twenty years following the enact
ment of the National Flood Insurance Act of
1968, as amended. (Public Law 90-448, 82
Stat.572, 42 USC 4001-4128). They revise
and replace Guidelines previously published
in the Federal Register on July 17, 1974, at
pages 26186-93; as revised on February 17,
1978, at pages 7142-48; on March 22,1978, at
page 11862; and on July 21, 1980, at pages
48711 and 48712.
Supplementary Information: The im
plementation of the statutory mandatory flood
insurance purchase requirements of the 1973
Act cited above is the responsibility of Federal
Agencies and Federal Instrumentalities and
does not rest upon the Federal Insurance Ad
ministration (HA). However, Section 205(b)
of the 1973 Act (42 USC 4128(b)) provides
that Federal Agencies and Federal Instrumen
talities shall, in cooperation with the Director
of the tvderal Emergency Management

Agency, issue appropriate rules and regula
tions to govern the carrying out of the Agen
cies' and Instrumentalities' responsibilities
under the 1973 Act.
Pursuant to this mandate for cooperation,
during the period in which FIA was a part of
the United States Department of Housing and
Urban Development, FIA issued Guidelines
designed to provide such guidance concerning
the insurance purchase requirements as might
be helpful in promoting greater uniformity and
understanding of the requirements among
Federal agencies, Federal instrumentalities,
private lending institutions, and their trade
associations, andthe public. Over the past ten
years, numerous questions of interpretation
have arisen which have been discussed at
many productive meetings between FIA and
representatives of Federal instrumentalities and
agencies. While FIA's Guidelines are not bind
ing upon these groups, FLA was encouraged by
the Federal Financial Institutions Examina
tion Council to update the earlier Guidelines,
and the Council members, who have reviewed
interim drafts of these Guidelines and offered
valuable suggestions, have agreed to dissemi
nate this final edition. FIA wishes to express
its deep appreciation for the assistance and
suggestions received not only from me Coun
cil, but from others within the agencies and in
strumentalities involved in themandatory flood
insurance purchase requirements. In publish
ing these Guidelines, FIA invites continuing
dialogue with all interested parties.
Effective Date: Upon publication in the Fed
eral Register of July 13,1989 at pages 29666
- 29695.

FOR FURTHER INFORMATION
CONTACT:
James M. Rose, Jr., Executive Assistant to the
Federal Insurance Administrator, Federal
Emergency Management Agency, Federal In
surance Administration, Washington, D.C.
20472, (202) 646-2780.

M andatory Purchase o f Flood Insurance G uidelines
1 1 ........3.

CONTENTS

The Guidelines are intended to provide guid
ance to Federal agencies, Federal Financial
Regulatory Agencies (defined by statute as
"Federal Instrumentalities"), lenders, borrow
ers and the general public. They are divided
into six sections, A through F, as follows:

1 1 .... 4. What is "Financial Assistance"
under the 1973 Act?
1 2 .... 5. How much flood insurance is
available?

Page

1 3 .... 6.

0 5 ........Section A, an introduction describing
the National Flood Insurance Program
(NFIP), and, through a tracing of its
legislative history, providing the
events and rationale which led to the
enactment of the mandatory flood
insurance purchase requirement.
Background history and brief de
scription of the NFIP

6 ........3.

Status of studies and maps for the
NFIP as of January 1, 1989

1 ........4.

1 4 .... 8.

Restrictions on federal financial
assistance by Federal officers and
agencies in nonparticipating com
munities

1 4 ........Section D, describing the application
of the 1973 Act to Federal instrumen
talities and private lenders subject to
their jurisdiction.

Letters of Map Amendment and
Letters of Map Revision

8 .... ....Section

How much flood insurance must
be purchased?

1 3 .....7. Mandatory flood insurance pur
chase requirements as determined
by the Small Business Admini
stration

5.... . ... 1 . Statutory authority for the NFIP
5........2.

Effect of Letters of Map Amend
ment and Letters of Map Revi
sion on the flood insurance pur
chase requirement

1 4 ........1. Application of the 1973 Act to
Federal instrumentalities and to
private lenders

J, describing the legislative

background and the provisions of the
Mandatory Flood Insurance Purchase
Requirements of the 1973 Act, and
listing six fundamental facts neces
sary for an understanding of the re
quirements.

........... (a) Federal Instrumentalities de
fined

........... (b) Legislative purposes and spe
cific mandate

15............... (c) How much flood insurance
must be purchased, for how
long, and to what transac
tions does the purchase re
quirement apply?

8.... . . . . 1 . Background and legislative his
tory of the Flood Disaster Protec
tion Act of 1973

9 ... ....2. Basic description of Mandatory
Flood Insuiance Purchase Re
quirements

1 5 .....2. Coastal Barrier Resources Act
(COBRA)

9.... ....3. Six basic components of the 1973

1 6 ....... 3.

Act

10... ....Section C, describing the application
of the 1973 Act to Federal Officers
and Agencies.

Effect of Letters of Map Amend
ment and Letters of Map Revi
sion

10... . . . . 1 . Federal Agencies defined

1 7 .... 4. Application of 1973 Act upon
conventional loans in nonpartici
pating communities

10.... ....2. Application of the 1973 Act to

17 ............... (a) What is a conventional loan?

Federal Officers and Agencies in
communities participating in the
NFIP

17............... (b) Authority for lenders to make
conventional loans in special

Federal Em ergency M anagem ent A gency
flood hazard areas of nonpar
ticipating communities
17

purpose of the loan transaction is
primarily to facilitate the purchase
of land for subsequent develop
ment?

...........(c) Notification requirements
and Notice Form

1 8 ........Section E, consisting of Guidelines to
an interpretation of die 1973 Act, with
nine subsections discussing:

18 ........1. Standards by which lenders are

...... (a) Status of surplus buildings of
nominal value on land pur
chased for development

...... (b) What if there is a structure in
a special flood hazard area
which is being used for resi
dential or commercial pur
poses on land whose value
alone would be sufficient to
secure the loan without re
gard to the value of the build
ing?

...... (c) NFIP deductibles and defini
tion of structure

...... (d) Buildings in the course of
construction

...... (a) Coastal Barrier Resources
Act (COBRA)

...... (b) Section 1316 of the 1973 Act

judged

1 8 ..............(a) Significance of the location
of the structure
18

...........(b) Examination of the map

.......... (c) The "Good Faith Standard"

1 9 ..............(d) The lender's reliance upon as
sistance

1 9 ..............(e) Who must make determina
tions?
19

...........(f) What is determined?

2 0 ...........(g) How to record that a determi
nation was made

2 0 .............. (h) The ultimate responsibility of
the lender

20 ........2. Should the amount of insurance
required reflect the value of the
land?

Unavailability of flood insurance
for specific buildings in commu
nities participating in the NFIP

and buildings in violation of

State or local laws

2 0 ........... (a) The 1973 Act refers to build
ings and mobile homes

...... (c) Section 1316, as applicable
to Federal officers and agen
cies

21 .............. (b) What the NFIP Policy covers
21

...... (d) NFIP underwriting restric
tions on eligibility or availa
bility of flood insurance

(d) What if a detached garage of
a residential property, to
which 10 percent of the prin
cipal structure's insurance is
applicable, is in the special
flood hazard area, while the
principal structure is outside
and what is the status of a tool
shed or shack similarly lo
cated?

Applicability of the 1973 Act to
purchase of mortgages by lenders

Acceptance of private flood in
surance policies and "Write Your
Own" policies

Lenders' remedies in the event of
prior failure to require flood in
surance

Home Equity Loans under the
1973 Act

Federal Financial Institutions In
teragency Examination Council

2 2 ........3.

What is the impact of the flood
insurance purchase requirement
if improvements on the real prop
erty are of nominal value, and the

M andatory Purchase of Flood Insurance G uidelines
procedures and examiner check
list for compliance
30.... ....Section F describing requirements of
the 1973 Act as to condominiums
30.... ....1. Insurance/property repair respon
sibilities of condominium asso
ciations
3 1 ... ....2.

Lenders' interest

3 1 ... ....3.

Nature of condominium ownership/lenders exposure

32.... ....4.

Peril of flood

32.... ....5.

Changes in the market place

33........6.

NFIP coverage - satisfying lender
requirements

....7. Residential coverage - unit owner

....8. Residential coverage - condomin
ium association

....9. Condominium Master Policy
(CMP) under the NFIP

....10. Non-residential coverage - con
dominiums

3 5 ....... 11. Coverage options
3 5 ............... (a) Individual Dwelling Policy
3 5 ............... (b) General Property Policy
3 5 ............... (c) CondominiumMaster Policy
4 4 ........An index follows these sections

Federal Em ergency M anagem ent A gency

2. BACKGROUND HISTORY AND
BRIEF DESCRIPTION OF THE
NATIONAL FLOOD INSURANCE
PROGRAM

A. INTRO DUCTION
1. STATUTORY AUTHORITY FOR
THE NATIONAL FLOOD
INSURANCE PROGRAM

Between 70 and 80 percent of all natural dis
asters in the United States involve flooding,
and from its earliest days the Federal govern
ment has been involved with the peril of flood
ing. Through re-channeling, or through dams
and levees, restricting the flow of waters, as
well as through the developmentof hydroelec
tric power and irrigation, the Federal govern
ment has attempted to ameliorate the effects of
flooding. But in spite of all these actions, vast
sums of money have had to be expended
through the response mechanism of Federal
Disaster Assistance.

The National Flood Insurance Program (NFIP)
became effective on January 28,1969, (33 FR
17804) and was authorized by the National
Flood Insurance Act of 1968, (Title XUI of the
Housing and Urban Development Act of 1968,
as amended, Public Law90-448, 82 Stat 476,
42 U.S .C. 4001-4128). The position of Federal
Insurance Administrator was authorized by
the Urban Property Protection and Reinsur
ance Act of 1968, (Title XI of the Housing and
Urban Development Act of 1968, and the
Federal Insurance Administration was estab
lished under the Housing and Urban Develop
ment Act of 1968 as part of the United States
Department of Housing and Urban Develop
ment (HUD). The Secretary of HUD delegated
to the Federal Insurance Administrator the re
sponsibility for administering the NFIP.

In 1968 the Congress embarked upon a new
course of action and focused upon ways in
which flood damage could be avoided or re
duced by making the public aware of its poten
tial exposure to flooding and by providing,
through the authorization of a Federal flood
insurance program, an incentive to encourage
communities to adopt floodplain management
ordinances that would mitigate the effects of
flooding upon new construction. Taking note
of the fact that insurance coverage against the
peril of flooding was virtually unavailable in
the private sector, the Congress enacted the
National Flood Insurance Act of 1968, and
authorized the National Flood Insurance Pro
gram, which represented a new approach to
assisting the victims of flooding by providing
an opportunity for property owners to pur
chase from the Federal government insurance
protection for structures and contents exposed
to the peril of flooding.

Subsequently, on June 19, 1978, President
Carter forwarded to the Congress Reorganiza
tion Plan No. 3 of 1978 (43 FR 41493) (which
had the effect of a Federal statute). This plan,
in addition to creating the Federal Emergency
Management Agency (FEMA), transferred the
functions authorized and described in the
National Flood Insurance Act of 1968 and the
position of Federal Insurance Administrator to
FEMA. The organization of FEMA was fur
ther defined in Executive Order 12127, dated
March 31,1979 (44 FR 19367) and Executive
Order 12148, dated June 20,1979. On April 1,
1979, in a notice published in 44 FR 20962,
and later codified at 44 CFR 2.64, the Director
of FEMA delegated responsibility for the
administration of the NFIP to the Federal In
surance Administrator of the Federal Insur
ance Administration (FIA), which had be
come a Directorate within FEMA.

Because the availability of government flood
insurance without hazard mitigation would
only have increased the potential for flood
damage by encouraging unwise construction,

M andatory Purchase of Flood Insurance G uid elin es
FIA was directed under the 1968 Act to con
duct studies throughout the United States to
determine in each community the location of
areas of special flood hazard and to issue Flood
Hazard Boundary Maps (FHBM) and Flood
Insurance Rate Maps (FIRM) showing the
location of these areas and to notify each
community of such identification.
Eligibility for the purchase of flood insurance
was made available only to those individuals
or corporations whose insurable property is
located within a community that has agreed
with the Federal government to adopt ordi
nances that will mitigate the impact of future
flooding. The most significant of these re
quired ordinances are those which, for ex
ample, condition the issuance of building per
mits for new residential construction in areas
of special flood hazard upon the requirement
that the building be constructed so that the
lowest floor will be located above the base
flood elevation, if that figure is provided on a
Flood Insurance Rate Map issued by FIA.
Participating communities that fail to ade
quately enforce their floodplain management
ordinances may be placed on probation if they
do not take corrective actions within a speci
fied time period. NFIP policyholders in that
community will be notified of the pending pro
bation and that their policies may become sub
ject to a surcharge on their flood insurance
premiums. If a community which has been
placed on probation fails to bring its floodplain
management program into compliance with
the NFIP requirements, it may be suspended
from the NFIP, a step which would terminate
its status as a participating community. In that
event, NFIP policies would not be renewed for
property owners in that community and no
new policies would be issued. Experience
shows that the probation process leads to
compliance and, as of January 1989, only three
communities have had to be suspended for
lack of compliance. However, communities
are routinely suspended for failure to adopt or
amend their floodplain management ordinances
to incorporate new flood hazard information

or revisions to NFIP regulations. Experience
shows thatwithin a very short time most of
these communities become participating again.

3. STATUS OF STUDIES AND MAPS
FOR THE NATIONAL FLOOD
INSURANCE PROGRAM AS OF
JANUARY, 1989
Some 18,642 communities have been identi
fied as flood prone through the publication of
a flood map by FIA. The total number of
communities participating in the NFIP is
17,797, including some 1,851 communities
for which no special flood hazards have been
identified and for which no map has been
published. Property owners within these par
ticipating communities are eligible to pur
chase flood insurance to protect buildings lo
cated anywhere within such communities, both
inside and outside of special flood hazard
areas (subject to restrictions of the Coastal
Barrier Resources Act, discussed below). Some
2,700 communities which have been mapped
do notpresently participate, andproperty own
ers in those communities are not eligible to
purchase flood insurance.
While these figures constantly change, as a
benchmark it may be useful to record the fact
that as of January, 1989, of the 17,797 partici
pating communities, 16,537 are in the Regular
Program. Their property owners, therefore,
are eligible to purchase the maximum amounts
of insurance coverage available under the Pro
gram.
Presently, only 1,260 participating communi
ties remain in the Emergency Program phase,
where only limited amounts of insurance are
available. Flood risk studies currently under
way in these communities are scheduled for
completion before September 30,1991. Upon
their completion, Flood Insurance Rate Maps
will be issued and will replace the Flood Hazard
Boundary Maps currently in effect for each of
these communities. At that time, these com
munities will, also, be eligible for conversion

Federal Em ergency M anagem ent A gency
The delineation of areas subject to such inun
dation is determined by FEMA through engi
neering studies. Special flood hazard areas are
usually refined into Zones A, AO, AH, AE,
A99, VO, VE, or V. (Older maps utilize num
bered A Zones, e.g. A l, A2...A30, and num
bered V Zones, e.g. VI, V2...V30 in lieu of the
newer AE and VE Zones, respectively. (New
maps use fewer zone designations for pur
poses of simplicity). The term special flood
hazard area does not include areas outside the
100-year floodplain, which are referred to as
moderate to minimal risk and are designated
Zone X. (Older maps differentiate the X Zone
into Zones B and C, which represent moderate
and minimal flood risks, respectively). Areas
for which no flood hazard evaluation has been
made by FEMA are designated as Zone D.)

to the Regular Program phase and eligible for
higher amounts of insurance coverage.
Special flood hazard areas are determined with
reference to the "100- year" flood standard,
which is the national standard on which NFIP
regulations are based. It is also the standard
adopted by virtually every federal agency and
most state agencies for the administration of
their floodplain management programs. The
100-year flood, also referred to as a "base
flood," is defined as the flood having a 1
percent probability of being equalled or ex
ceeded in any given year. The risk of experi
encing a flood of this magnitude increases
with the length of time considered.
Of special interest to lenders is the fact that
within the special flood hazard area there is a
26 percent chance (about one in four) of expe
riencing such a flood over a typical 30 year
mortgage period. By contrast, during the term
of a 30-year mortgage, there is only a 1 percent
chance of suffering a fire loss.

4. LETTERS OF MAP AMENDMENT
OR MAP REVISION REMOVING
PROPERTIES FROM SPECIAL
FLOOD HAZARD PROGRAMS
Situations occasionally arise in which a piece
of real property is shown on a flood map as
being in a special flood hazard area even
though the property is, in fact, above the 100
year flood level. This happens because flood
insurance maps cannot reflect every rise in
terrain and there will be instances where there
will be "natural islands" of high ground in the
special flood hazard area that were inadver
tently included in the special flood hazard
area. Nevertheless, until the map has been
changed, lenders are bound by the information
shown on FLA maps and cannot validly make
a determination on their own that is inconsis
tent with the map.

But, while necessary for applying floodplain
management requirements and establishing
uniform flood insurance rates, the term 100year flood can be misleading. Although it
represents the long term average recurrence
interval for a flood of this magnitude, such
floods may be experienced in any given year.
There have been numerous instances since the
NFIP \yiasestablished where communities have
sustained two, and even three, 100- year or
greater floods within a several year period. A
notable example took place in the 1970s when
within five years after experiencing Tropical
Storm Agnes in 1972, Pennsylvania was bat
tered by another 100-year flood, demonstrat
ing the value of the standard as a tool for meas
uring exposure to a 100 year flood, but not for
predicting its timing. The 100-year flood might
be more properly 'ermed the "1 percent annual
chance flood", which represents its true proba
bility of being equalled or exceeded in any
year.

Fortunately, there is a very workable mecha
nism for resolving such problems. FLA has
created an efficient procedure by which a
property owner can submit elevation materials
in support of a request for a Letter of Map
Amendment (LOMA) removing the property
from the special flood hazard area. Such a
process involves only the property owner and
the FIA and does not require that the commu
nity become involved.

Special flood hazard areas include only those
areas which are in the 100- year floodplain.

M andatory P u rchase o f Flood Insurance G uidelines
A related but different situation is presented
when a property owner, whose land is within
a special flood hazard area below the 100 year
flood level, grades and fills the site to raise the
level of the land above the 100 year flood level.
This situation differs from the one above be
cause in the previous situation the natural level
of the land at the time that the map was issued
was above the 100 year flood level and no
artificial improvement was needed to accom
plish that level. In cases where physical changes
have had to be made to raise the level of the
property above the base flood elevation, FIA
will not issue a letter of map amendment.
However, with the concurrence of the commu
nity FIA will issue a Letter of Map Revision
(LOMR) which, for the purposes of the prop
erty owner will accomplish the same purpose.
A LOMR can also be used to correct a mistake
made in the original analysis or when condi
tions have changed as in the case of the con
struction or removal of a dam or other flood
control structure.

building, supported by walls or pilings, whose
lowest floor is above the 100-year flood level.
In this situation there is no basis for the issu
ance of either a letter of map amendment or
map revision. The building is still in the desig
nated special flood hazard area and its founda
tion can come into direct contact with flood
waters. However, the elevation of the building
will be reflected in the lower insurance rate
and premium that such elevation will have
made possible. Only the Federal Insurance
Administration can amend an official map to
remove or add a particular property location
from a designated SFHA by a Letter of Map
Amendment, or revise a map by a Letter of
Map Revision to change the special flood
hazard area or revise the elevations on a map.

The request must be made, or concurred in, by
the community because changes in land level
that result from grading and the placing of fill
on the property may have an impact upon other
property owners. The submission of a request
for a letter of map revision from the commu
nity evidences that the change in land level has
been reviewed by the community and been
found to be compatible with the community's
planning. Letters of map revision may be also
be granted in situations where channels have
been dug or reservoirs built to reduce base
flood elev ations and where levees or floodwalls
have been constructed to protect areas. (It
should be noted that in floodways of special
flood hazard areas, which include the channel
of a river and the adjacent floodplain that must
be reserved in an unobstructed condition, the
placing of fill or other development is not
allowed if it will result in increased flood
levels.) A seemingly related, but different,
situation is presented when a property owner,
whose land is at a level below the 100-year
flood level, i.e., the base flood elevation, in a
special flood hazard area, builds an elevated

1. BACKGROUND AND LEGISLATIVE
HISTORY OF THE FLOOD DISAS
TER PROTECTION ACT OF 1973

B. TH E M AN DATO RY FLOOD
IN SURAN CE PURCH ASE
REQ U IR E M E N T

From 1968 until the adoption of the Flood
Disaster Protection Act of 1973, the purchase
of flood insurance was voluntary. Unfortu
nately, despite the availability of the insur
ance, after major flooding disasters in 1972 it
became evident that relatively few flood vic
tims had purchased flood insurance. From the
standpoint of the Federal government the
question has been not whether the Federal
government would be called upon to provide
relief to those who suffered from flooding, bu t,
rather, through what mechanism would Fed
eral funds be made available. Therefore, the
failure of the public to avail itself of the bene
fits of flood insurance as an alternative to the
disaster assistance approach became a matter
of concern to the Congress.
This concern was expressed by the Congress
in the findings contained in Sections 2(a)(2),
(3), (4) and (5) (42 USC 4002) of the Rood
Disaster Protection Act of 1973, which noted

Federal Em ergency M anagem ent A gency
Insurance Program’s Standard Flood Insur
ance Policy refer to "mobile homes" as "manu
factured homes.")

"the availability of Federal loans, grants, guar
anties, insurance, and other forms of financial
assistance are often determining factors in the
utilization of land and the location and con
struction of public and of private industrial,
commercial and residential facilities" and that
"property acquired or constructed with grants
or other Federal assistance may be exposed to
risk of loss through floods, thus frustrating the
purpose for which such assistance was ex
tended" and that "the Nation cannot afford the
tragic losses of life caused annually by flood
occurrences, nor the increasing losses of prop
erty suffered by flood victims, most of whom
are still inadequately compensated despite the
provision of costly disaster relief.

The Act also requires Federal Financial Regu
latory Agencies (Federal Instrumentalities) to
direct lenders subject to their regulatory juris
diction to require borrowers, whose security
consists of buildings or mobile homes located
in a special flood hazard area in a participating
community, to purchase flood insurance. Con
tents coverage is not required unless, as speci
fied in the statute, there is any "personal prop
erty securing the loan", as well as improved
real property.

3. SIX FUNDAMENTAL
COMPONENTS OF THE 1973 ACT

The Congress defined its purpose in Section
2(b)(4) of the 1973 Act as being to "require the
purchase of flood insurance byproperty own
ers who are being assisted by Federal pro
grams or by Federally.supervised, regulated,
or insured agencies or institutions in the acqui
sition or improvement of land or facilities lo
cated or to be located in identified areas having
special flood hazards".

In assessing the impact of the 1973 Act and
gaining an understanding of its provisions, the
six most important factors to keep in mind are:
(a) Although the intent of the statute is to
require the purchase of flood insurance by
borrowers in special flood hazard areas, the
directives and prohibitions contained in the
1973 Act apply only to Federal officers and
agencies, and to Federal Instrumentalities that
are required by the statute to issue implement
ing rules. The 1973 Act, by itself, does not
require or prohibit acuon on the part of com
munities, owners of improved real property, or
lending institutions.

2. BASIC DESCRIPTION OF
MANDATORY FLOOD INSURANCE
PURCHASE REQUIREMENTS, AS
CONTAINED IN THE FLOOD
DISASTER PROTECTION ACT OF
1973

(b) The directives and prohibitions of the 1973
Act require implementing rules only as to
transactions that involve improved real estate
located in special flood hazard areas desig
nated by FEMA on its Flood Hazard Boundary
Maps and Flood Insurance Rate Maps, and
whose Zone designations are A or V. Im
proved real estate, for purposes of the act, is
property on which there is already standing, or
in the course of construction, a walled and
roofed building insurable under an NFIP flood
insurance policy.

Since March 2,1974, the Flood Disaster Pro
tection Act of 1973, hereinafter the "1973
Act", has required the purchase of flood insur
ance as a condition of receiving any form of
Federal or Federally related financial assis
tance from any Federal officer or agency for
acquisition or construction purposes with re
spect to any building or mobile home located
in any area that has been identified by the Di
rector of the Federal Emergency Management
Agency as a special flood hazard area, within
any community participating in the National
Flood Insurance Program. (Recent terminol
ogy adopted by the Department of Housing
and Urban Development and regulatory
changes in the language of the National Flood

(c) Inasmuch as the NFIP does not insure land
and provides coverage only for buildings, the
fact that part of the borrower's real property
may be located in a special flood hazard area

M andatory P u rchase o f Flood Insurance G uidelines
does not require that flood insurance be pur
chased for a building located on that real prop
erty unless some portion of the building itself,
and not just a portion or portions of the real
property, is located in a special flood hazard
area.

of statutory restrictions or underwriting rules
of the the NFIP. The consequences of the
unavailability of flood insurance in such in
stances will be discussed further along.

(d) Because the NFIP and its flood insurance
policies are not available in communities that
are not participating in the NFIP, the manda
tory flood insurance purchase requirement
applies only with respect to property located in
special flood hazard areas in communities par
ticipating in the NFIP.

C. APPLIC A TIO N OF THE 1973
AC T TO FEDERAL
O FFIC ER S AND AG ENCIES
1. FEDERAL AGENCIES DEFINED
Federal Agencies are defined in Section 3 (a)(2)
of the 1973 Act (42 USC 4003(a)(2), as "any
department, agency, corporation, or other entity
or instrumentality of the executive branch of
the Federal Government, and includes the Fed
eral National Mortgage Association and the
Federal Home Loan Mortgage Corporation".

(e) As to properties located outside the special
flood hazard areas, and whose Zone designa
tions are B, C, X, or D, the 1973 Act does not
apply and, therefore, there is no mandatory
flood insurance purchase requirement.
(f) Lenders are free to consider requiring flood
insurance in a participating community on the
basis of their own business judgment, even if
the building that is the security for a loan is
located outside of a special flood hazard area.
While the mandatory flood insurance pur
chase requirement applies only to properties
located in special flood hazard areas of partici
pating communities, it is important to remem
ber that flood insurance is available through
out participating communities. This is espe
cially significant in light of the fact that, his
torically, the NFIP's loss ratio indicates that
one-third of claims paid have actually been
outside of special flood hazard areas. Areas
where lenders and property owners may wish
to exercise additional caution include, but are
not limited to, areas subject to flooding due to
stormwater, areas where the NFIP has used
approximate methods to map flood hazardareas, and the more remote areas where no flood
hazard areas have been designated by FEMA.
To facilitate the purchase of flood insurance
outside of special flood hazard areas, in Janu
ary, 1989, the NFIP began offering a low cost
"preferred risk" policy for structures located in
Zones B, C, and X.
Some properties in a participating community
may be ineligible for flood insurance because

2. APPLICATION OF THE 1973 ACT
IN COMMUNITIES THAT ARE
PARTICIPATING IN THE
NATIONAL FLOOD INSURANCE
PROGRAM
The first application of the mandatory flood
insurance purchase provision of the 1973 Act
is contained in Section 102 (a), 42 USC
4012a(a), which addresses the responsibility
of Federal officers and agencies in approving
financial assistance for acquisition or con
struction purposes for use in any special flood
hazard area in communities that are participat
ing in the NFIP. A community participates in
the NFIP by entering into an agreement with
the FIA to adopt and enforce ordinances wliich
are designed to reduce the vulnerability of
property in that community to the peril of
flooding. In return for that participation, most
owners of residential and commercial prop
erty in that community become eligible to
purchase flood insurance for their buildings
from the NFIP. If the community is participat
ing in the NFIP, that participation makes flood
insurance available to the property owners in
that comr lunity and Federal officers and agen
cies are authorized to provide financial assis
tance in that community.

Federal E m ergency M anagem ent A gency
But, under Section 102 (a) of the 1973 Act,
Federal officers and agencies are prohibited
from providing financial assistance unless the
property to which that financial assistance is
applicable is protected by flood insurance (if
the particular property is eligible for flood in
surance under the rules of the NFIP) and must,
therefore, require the purchase of flood insur
ance as a condition of making such financial
assistance available. The term "property" to
which the mandatory flood insurance pur
chase requirement applies is described as "the
building or mobile home and any personal
property to which such financial assistance re
lates". The flood insurance must remain in
force "during the anticipated economic life of
the project" and the insurance coverage must
be "in an amount that is at least equal to its
development or project cost (less estimated
and cost) or to the maximum limit of coverage
nade available under the National Flood In;urance Act of 1968, whichever is less." (But
tote that when the amount of flood insurance
hat can be purchased was raised by the Con
gress in 1977, a statutory cap on the amount
hat must be purchased was established by the
Congress.)

L EFFECT OF LETTERS OF MAP
AMENDMENT AND MAP REVISION
UPON PURCHASE REQUIREMENT
luestions are frequently asked concerning
uildings that are located on ground that is
hown as being in a special flood hazard area,
ut that is actually above the 100 year flood
;vel. As noted above, under Section A 4.,
lere are procedures under which a Letter of
lap Amendment or a Letter of Map Revision
an be obtained which will take the particular
Drtion of real property and the improvements
ereon out of the special flood hazard area,
owever, it is important to keep in mind that
itil a property owner has received a Letter of
lap Amendment or a Letter of Map Revision,
moving the improved real property from the
>ecial flood hazard area, Federal agencies (as
ell as lenders regulated by Federal Instruentalities) must rely only upon flood hazard
•undarymaps and flood insurance rate maps.

Thus, if a building is shown as being in a
special flood hazard area, the purchase re
quirements of the 1973 Act apply. When the
property owner obtains a Letter of Map
Amendment or Letter of Map Revision, he
may submit the letter to the Federal agency
and the Federal Agency may release the prop
erty owner from the obligation to purchase
flood insurance. However, even though a
Federal Agency is not required to compel the
purchase of flood insurance with respect to
improved real property that is subject to a
letter of map amendment or map revision, the
Agency has the discretionary right to con
tinue to require flood insurance if theAgency
chooses to do so. It mu?t also be kept in mind
that when a property owner with property
below the 100 year flood level builds an
elevated building whose lowest floor is above
the 100 year flood level, there is no basis for
the issuance of either a letter of map amend
ment or map revision and the flood insurance
purchase requirement continues to apply.
The reason for requiring the insurance is that
the foundation on which the house is elevated
is still below the base flood elevation in the
special flood hazard area where it remains
exposed to the action of floodwaters.

4. WHAT IS "FINANCIAL
ASSISTANCE?"
Federal "financial assistance" and federal
"financial assistance for acquisition or con
struction purposes" are defined in Sections 3
(a)(3) and (4) of the 1973 Act (42 USC 4003),
"Financial assistance" is defined as any "loan,
grant, guaranty, insurance, payment, rebate,
subsidy, disaster assistance loan or grant, or
any other form of direct or indirect Federal as
sistance, other than general or special revenue
sharing or formula grants made to States."
and similar forms of direct and indirect assis
tance from Federal agencies, such as Federal
Housing Administration or Veterans Admini
stration loans, insurance or guaranties. Fed
eral "financial assistance for acquisition or
construction purposes" is defined as "any
form of financial assistance which is intended
in whole or in part for the acquisition, con

M andatory P u rchase of Flood Insurance G uid elin es
struction, reconstruction, repair, or improve
ment of any publicly or privately owned build
ing or mobile home, whether or not the build
ing is enhanced, and for any machinery, equip
ment, fixtures, and furnishings contained or to
be contained therein, and shall include the pur
chase or subsidization of mortgages or mort
gage loans."
Federal Agencies, such as the Federal Housing
Administration, the Veterans Administration
and the Small Business Administration and
the Federal National Mortgage Association
(FNMA) and the Federal Home Loan Mort
gage Corporation (FHLMC), the latter two
having been specifically included in the defi
nition contained in Section 3(a)(2) of the 1973
Act, are forbidden by the Act from approving
any financial assistance in the form of a loan or
guaranty of a loan in the case of a building to
which such financial assistance relates which
is located in a special flood hazard area unless
flood insurance has been purchased to protect
that building against the peril of flooding,
thereby protecting the interests of the Federal
entity against the consequences of flood
damage to the property.
The Federal National Mortgage Association
and the Federal Home Loan Mortgage Corpo-

ration of the Department of Housing and Urban
Development have interpreted the term "fi
nancial assistance" to include their purchase of
mortgage loans from lending institutions and
include in their definition of hazard insurance,
the peril of flood. It should be noted that the
servicing guidelines of FNMA and FHLMC
require that the current servicer of loans sold to
those agencies assume responsibility for flood
insurance renewals. The term Federal finan
cial assistance includes loans, grants, guaran
tees and similar forms of direct and indirect
assistance from Federal agencies such as HUD,
the Federal Housing Administration (FHA)
and the SB A. The 1973 Act applies and thus
restricts flood-related Federal financial assis
tance pursuant to the Disaster Relief Act of
1974. However, the current definition of fi
nancial assistance contained in Section 3(a)(4)
of the 1973 Act does not apply to and, there
fore, does not restrict assistance for disasters
that are not related to flooding.

5. HOW MUCH FLOOD INSURANCE
IS AVAILABLE?
The amounts of flood insurance currently
available under the NFIP are as follows:

E m erg en cy pro g ram

R eg u la r P rogram
M axim u m
In su rance
A vailab le

Single-family dwelling

$35,000

$185,000

$ 70,000

Other residential

100,000

250,000

200,000

Non-residential

100,000

200,000

Small Business

100,000

250,000

200,000

$10,000

$60,000

$20,000

Non-Residential

100,000

200,000

Small Business

100,000

300,000

200,000

B u ildin g C overage

M a xim u m A m o unt
of In su rance
R eq uired by
1973 A ct, as
A m end ed in 1977*

C o n ten ts C o v era g e (P er U nit)

Residential

(Higher limits of basic coverage are available under the Emergency Program in Hawaii, Alaska, U.S. Virgin
Islands, and Guam.)
‘ Federal Instrumentalities, as well as lenders, while not required by statute, may choose to require insurance
above this amount on the basis of their evaluation of the risk to which the property is exposed.

Federal Em ergency M anagem ent A gency

6. HOW MUCH FLOOD INSURANCE
MUST BE PURCHASED?
In addressing the question of how much insur
ance must be purchased, Section 102(a) of the
1973 Act prohibits the providing of financial
assistance "unless the building or mobile home
and any personal property to which such finan
cial assistance relates is, during the anticipated
economic or useful life of the project, covered
by flood insurance in an amount at least equal
to its development or project cost (less esti
mated land cost) or to the maximum limit of
coverage made available with respect to the
particular type of property under the National
Flood Insurance Act of 1968, whichever is
less: Provided, That if the financial assistance
provided is in the form of a loan or an insur
ance or guaranty of a loan, the amount of flood
nsurance required need not exceed the out
standing principal balance of the loan and need
tot be required beyond the term of the loan".
Towever, on October 12, 1977, the requirenent that insurance be purchased to "the
naximum limit of coverage made available"
mder the 1968 Act was revised and made
ubject to a statutory cap by Section 1306(b)(6)
>f the National Flood Insurance Act of 1968,
42 USC 4013(b)(6)), whichstates: "the Flood
nsurance purchase requirements of Section
02 of the Flood Disaster Protection Act of
973 do not apply to the additional flood
nsurance limits made available in excess of
vice the limits made available under pararaph 1306(b)(1)".
ection 1306 (b)(1) authorizes the Federal
lsurance Administration to make available
nder the lower limits of the Emergency Pro
ram $35,000 of coverage for any single family
welling and$100,000 for any residential strucire containing more than one dwelling unit,
n the States of Alaska and Hawaii and in the
irgin Islands and Guam the figures are
50,000 and $150,000). Section 1306 (b)(1)
akes available $100,000 for commercial
ructures. Thus the maximum cap on the
andatory flood insurance purchase requireents provided by Section 1306(b)(6) is two

times these amounts, namely, $70,000 for
single family dwellings, and $200,000 for
other structures.

7. ARE THE AMOUNTS OF FLOOD
INSURANCE THAT MUST BE
PURCHASED ALWAYS THE
SAME, REGARDLESS OF WHICH
FEDERAL AGENCY OR
INSTRUMENTALITY IS
RESPONSIBLE FOR ENFORCING
THE FLOOD INSURANCE
PURCHASE REQUIREMENT?
In the exercise of its statutory responsibilities,
the Small Business Administration has made
an interpretation of the statutory provisions
cited above and requires insurance up to the
value of a property, or the maximum amount
of insurance that can be purchased, which
ever is less, regardless of the actual amount of
the loan. In this way, the borrower becomes
more-fully protected against the peril of flood
ing. While the Act does not require insurance
to value, a practice normal in property insur
ance, neither does it prohibit it, and SBA has
used its authority to align the treatment of
flood insurance with the standard treatment
of other hazard insurance.
The basic amounts of insurance required by
statute are discussed above in Section C.5. of
these guidelines. Some of the Federal agen
cies, however, such as the Federal National
Mortgage Association (FNMA), have adopted
different requirements to protect their inter
ests. The FNMA requires, "the amount of
flood insurance to be equal to the lesser of
100% of the insurable value of the (condo
minium) facilities or the maximum coverage
available under the appropriate National Flood
Insurance Administration program...." Thus,
for a lender to be absolutely sure that it is
complying with the specific requirements of
the Federal agency that regulates, supervises
or insures that institution, it should carefully
review the requirements of such agencies or
Instrumentalities and not rely solely on these
guidelines.

M andatory Purchase o f Flood Insurance G uidelines
furnishings contained or to be contained
therein".

In those cases where the amount of the loan or
the insurable value of the property exceeds the
statutorily required amount of flood insur
ance, it would seem to be a wise business
practice to encourage the purchase of enough
flood insurance to protect the interests of both
the mortgagor and the mortgagee, to the extent
that such interests can be protected, by the cov
erages under the NFIP.

Thus, for example, Section 202 (a) does not
prevent financial assistance for the construc
tion of roads and bridges in special flood
hazard areas of nonparticipating communi
ties. But it does prohibit assistance for con
structing any building. This prohibition ap
plies even if the building would not have been
eligible for flood insurance had it been located
in a participating community, as in the case of
a building that is partially underground and
used as a pumping station in a sewer system.
The prohibition against providing financial
assistance in nonparticipating communities,
therefore, is based not so much upon the fact
that the protection of NFIP flood insurance is
not available in nonparticipating communities
as it is to the fact that the community has no'
agreed to mitigate the hazard of flooding
through floodplain management.

8. RESTRICTION ON FEDERAL
FINANCIAL ASSISTANCE BY
FEDERAL OFFICERS AND
AGENCIES IN COMMUNITIES
THAT ARE NOT PARTICIPATING
IN THE NATIONAL FLOOD
INSURANCE PROGRAM
Section 202(a) of the 1973 Act (42 USC
4106(a)) addresses the responsibility of Fed
eral officers and agencies with respect to
Federal financial assistance in areas of special
flood hazard of communities that are not par
ticipating in the National Rood Insurance
Program and in which flood insurance is not
available. In order to prevent the Federal gov
ernment from being financially exposed to
potential loss as a result of flood damage to
uninsured buildings located in areas of special
flood hazard, Federal officers and agencies are
specifically prohibited by Section202 (a) from
providing financial assistance for acquisition
or construction purposes, for use in areas of
special flood hazard if the community is not
participating in the NFIP.

D. A PPLICATIO N OF THE 1972
ACT TO FEDERAL
IN STR U M EN TA LITIES AND
TO PRIVATE LENDERS
W HO ARE S U B JE C T TO
THEIR JURISDICTIO N

Section 202 (a), read by itself, has a very broad
scope, for its prohibition refers to any assis
tance for acquisition or construction purposes
that would be used in any special flood hazard
area. However, read in conjunction with the
definition of financial assistance contained in
paragraph (4) of Section 3 of the 1973 Act, as
discussed above, it becomes clear that Section
202 (a) limits financial assistance to "financial
assistance which is intended in whole or in part
for the acquisition, construction, reconstruc
tion, repair, or improvement of any publicly or
privately owned building or mobile home, and
for any machinery, equipment, fixtures, and

Of special significance to Federal Instrumer
talities and the lenders regulated by, or whos
deposits are insured by, the Instrumentalitie
is the second area to which the 1973 A<
applies in Sections 102 (b) and 202 (b), whic
address conventional loans by such lenders, £
distinguished from Federal financial assistanc

1. IN COMMUNITIES THAT ARE
PARTICIPATING IN THE
NATIONAL FLOOD INSURANCE
PROGRAM AND WHERE FEDERA
FLOOD INSURANCE CAN
THEREFORE BE MADE
AVAILABLE

(a) Instrumentalities defined
The term "Federal Instrumentality"
defined in Section 3(a)(5) of the 1973 A

Federal Em ergency M anagem ent A gency
(42 USC 4003(a)(5)), as the "Board of
Governors of the Federal Reserve System,
the Federal Deposit Insurance Corpora
tion, the Comptroller of the Currency, the
Federal Home Loan Bank Board (cur
rently, Office of Thrift Supervision), the
Federal Savings and Loan Insurance Cor
poration, and the National Credit Union
Administration."
(b) Legislative purpose and specific
mandate
The purpose behind these Sections is seen
in the Congressional finding in Section
2(a)(4) of the 1973 Act that " Federal
Instrumentalities insure or otherwise pro
vide financial protection to banking and
credit institutions whose assets include a
substantial number of mortgage loans and
other indebtedness secured by property
exposed to loss and damage from floods
and mudslides". As noted above, the Act
does not, by itself, require or prohibit
activities on the part of lenders. Section
102(b) of the Act (42 USC 4012a(b))
directs the Federal Instrumentalities to
adopt regulations requiring lenders sub
ject to their jurisdiction to compel borrow
ers to purchase flood insurance protecting
any "improved real estate or mobile home"
located in a special flood hazard area in a
community that is eligible for the pur
chase of National Flood Insurance, if the
building, mobile home, and any personal
property securing such loan, is to be the
security for the loan. (The requirement
only applies if the particular property is
eligible for flood insurance under the rules
of the NFIP.)

principal balance of the loan, or to the
maximum limit of coverage made avail
able with respect to the particular type of
property under the Act, whichever is less".
However, as noted above, on October 12,
1977, the requirement that insurance be
purchased to "the maximum limit of cover
age made available" under the 1968 Act
was revised by Section 1306(b)(6) of the
National Flood Insurance Act of 1968, (42
USC 4013(b)(6)), and made subject to a
statutory cap of twice the limits made
available under paragraph 1306(b)(1).
The specific language of the Act describes
very broadly the transactions that come
within the purchase provisions and includes
instances in which lenders "make, increase,
extend, or renew any loan secured by
improved real property or a mobile home
located or to be located" in a special flood
hazard area of a community "in which
flood insurance has been made available
under the National Flood Insurance Act of
1968". This also includes such transactions
as second mortgages andhome equity loans.
N O T E : IN A L ^ O F T H E S E
IN STAN CES, L E N D E R S SH O U LD
B E AW ARE THAT, S U B JE C T TO
AVAILABLE P O U C Y LIM ITS, T H E Y
H A V E T H E D ISCR ETIO N TO
R EQ U IR E H IG H ER AM O UNTS O F
CO VER A G E THAN R EQ U IRED B Y
LA W I F T H E Y CO NSIDER IT
N E C ESSA R Y TO P R O T E C T T H E
F U L L AM O U N T O F THEIR
IN TER ESTS, AS W ELL AS TH O SE
O F TH E BORROWER.

(c) How much insurance must be pur
chased and for how long must it be in
force, and to what transactions does the re
quirement apply?

2. IN PORTIONS OF PARTICIPATING
COMMUNITIES THAT HAVE BEEN
DESIGNATED BY THE
DEPARTMENT OF THE INTERIOR
AS UNDEVELOPED AREAS UNDER
The Act requires that "the building or
THE THE COASTAL BARRIER
mobile home and any personal property
RESOURCES ACT (COBRA)
securing the loan" be covered "for the
term of the loan by flood insurance in an While ordinarily almost any building in a
amount at least equal to the outstanding community that is participating in the NFIP is

M andatory P urchase o f Flood Insurance G uidelines
eligible for flood insurance, there is one sig
nificant situation in which Congress has cho
sen to deny residents of a participating com
munity eligibility for flood insurance.The
Coastal Barrier Resources Act (COBRA),
Public Law 97-348, was adopted by Congress
in October of 1982 to amend the National
Flood Insurance Act of 1968, as amended, by
adding Section 1321 (42 USC 4028). Section
1321 prohibits the NFIP from providing flood
insurance protection for structures built or
substantially improved after October 1, 1983,
in any of the areas designated by the Depart
ment of the Interior as an undeveloped coastal
barrier.
Buildings already located in the designated
areas and walled or roofed prior to October 1,
1983 remain eligible for coverage. If a build
ing built in a designated area prior to October
1,1983 sustains major damage as a result of a
fire, hurricane or other causes, the restored
structure would not be eligible for flood insur
ance coverage. Major damage is considered to
be damage in an amount of 50% or more of the
structure's pre-damage fair marketvalue. Simi
larly, improvements to astructurebuiltpriorto
October 1,1983, on a designated undeveloped
coastal barrier area which total 50% or more of
the structure's pre-improvement fair market
value would eliminate the structure's eligibil
ity for coverage under the NFIP. Only the
undeveloped coastal barrier portion of each
community is affected by COBRA's insurance
limitation. The remainder of the participating
community remains eligible under the NFTP
for flood insurance coverage for new and ex
isting construction. The Department of the
Interior was assigned the task of determining
which of the coastal areas were undeveloped
coastal barriers and of submitting a list to the
Congress. The final Congressional designa
tion included 187 undeveloped portions of 134
coastal communities. Additional areas are cur
rently under consideration for inclusion in the
Coastal Barrier Resources System.
The question as to whether any requirements
are placed upon lenders who wish to make

conventional loans with respect to uninsurable
property on an undeveloped coastal barrier in
a special flood hazard area of a participating
community is specifically answered by Sec
tion 1321 of the 1968 Act, (42 USC 4028).
That section provides:
"A federally insured financial institution may
make loans secured by structures which are
not eligible for flood insurance under this title
by reason of subsection (a)"
Thus, while lenders would still have to notify
borrowers that the property was in a special
flood hazard area, as required by Section 1364
of the 1968 Act, the unavailability of flood
insurance does not prevent the making of the
conventional loan. However, the lender would
be well advised to assess the flood risk at the
site and make a decision on granting the loan
based on that assessment.

3. IN COMMUNITIES THAT ARE
PARTICIPATING IN THE NFIP PROPERTY SUBJECT TO
LETTERS OF MAP AMENDMENT
OR MAP REVISION
As noted above, there are procedures unde:
which a Letter of Map Amendment or a Lette:
of Map Revision can be obtained which wil
take the particular portion of real property, anc
the improvements thereon, out of the specia
flood hazard area. However, it is important t<
keep in mind that until a property owner has re
ceived a Letter of Map Amendment or Lette
of Map Revision, the lender must rely onl;
upon Flood Hazard Boundary and Flood In
surance Rate Maps. If a particular piece o
property is shown as being in a special flooi
hazard area, the lender is bound hy fhe infor
mation and must apply the insurance purchas
requirements of the 1973 Act in accordanc
with the map.
However, even though a lender is not require
to compel the purchase of flood insurance wit
respect to improved real property that is sut
ject to a letter of map amendment or map rev
sion, the lender has the discretionary right t
continue to require flood insurance if the lend*

Federal E m ergency M anagem ent A gency
chooses to do so. When aproperty owner with
property below the 100 year flood level builds
an elevated building whose lowest floor is
above the 100 year flood level, there is no
basis for the issuance of either a letter of map
amendment or map revision and the flood
insurance purchase requirement continues to
apply, because the foundation supporting the
elevated building in the special flood hazard
area is still below the base flood elevation
where it is exposed to the action of the water.
However, premium levels may reflect re
duced exposure to damage.

4. IN COMMUNITIES THAT ARE NOT
PARTICIPATING IN THE
NATIONAL FLOOD INSURANCE
PROGRAM
It is important to note that while Federal offi
cers and agencies are still prohibited by Section202 (a) of the 1973 Act, (42 USC 4 106(a))
from providing financial assistance with re
spect to improved real property in areas of
flood hazard in communities that are not par
ticipating in the NFIP and in which the sale of
National Flood Insurance is not authorized,
the making of conventional loans in such
communities by private lenders became per
missible in 1977.
(a) What is a conventional loan?
A conventional loan is a loan by a private
lender, as distinguished from a loan by a
Federal government agency, that is not
secured, insured or guaranteed by a Fed
eral government agency. Such a loan,
even when made by a lender that is regu
lated by or has its deposits insured by a
Federal Financial Regulatory Agency
(Federal Instrumentality), remains a con
ventional loan because the loan itself is
not secured, insured or guaranteed by a
Federal government agency.
(b) Authority for lenders to make con
ventional loans in special flood hazard
areas of nonparticipating communities

An amendment to the 1973 Act (frequently
referred to as "The Eagleton Amendment")
contained in the Housing and Community
Development Act of 1977 (Public Law
95-128), deleted from the Act its original
Section 202(b) (42 USC 4 106(b)) require
ment that Federal Instrumentalities issue
regulations prohibiting lenders from mak
ing conventional loans with respect to
property innonparticipating communities.
The original prohibition was replaced by a
new Section 202(b) which substituted in
its place a notification requirement. Con
sequently, lenders regulated by, or whose
deposits are insured by Federal Instru
mentalities may make conventional loans
secured by mortgages on improved real
property and mobile homes in areas of
special flood hazard in communities that
are not participating in the NFIP. They
may do so notwithstanding the fact that
such property is not eligible for the pur
chase of National Flood Insurance, and,
thus, the mandatory flood insurance pur
chase requirement does not apply with re
spect to such loans. However, lenders
should carefully evaluate the underwrit
ing risk involved in making such loans.
(c) Requirements for notification to the
borrower if improved real property that is
the security for the loan is in a special
flood hazard area.
The notice requirements, by their specific
language, apply only when improved real
property is the security for a loan. The
requirements do not apply to unsecured
loans or to loans secured by improved real
property that is not located in a special
flood hazard area. While the Housing and
Community Development Act of 1977 re
moved the prohibition against making con
ventional loans in nonparticipating com
munities, the "notice" provision, which is
the current Section 202(b) of the Flood
Disaster Protection Act of 1973, requires
the instrumentalities to compel lenders to
notify borrowers as to whether Federal

M andatory P u rchase o f Flood Insurance G uid elin es
disaster relief will be available to the prop
erty in the event of a disaster caused by
flood. For the convenience of lenders, FIA
has drafted a notice form, FEMA Form
81-2.

JUDGED IN CONSIDERING ITS
DETERMINATION AS TO
WHETHER A STRUCTURE IS OR
IS NOT IN AN AREA OF SPECIAL
FLOOD HAZARD?

An additional requirement, mandated by
Section 1364 of the National Flood Insur
ance Act of 1968, as amended, (42 USC
4104a), directs the Instrumentalities to
compel lenders to notify the purchaser or
lessee of the improved real property or
mobile home in writing of the special
flood hazard to which the property is ex
posed or obtain satisfactory assurances
that the seller or lessor has so notified the
purchaser or lessee. These notifications
are to be made "a reasonable period in ad
vance of the signing of the purchase agree
ment, lease, or other documents involved
in the transaction". Consistent with the
recommendation by the Federal Financial
Institutions Examination Council, FIA
believes that the "reasonable time" re
quirement is satisfied if the notices are
provided ten days before the closing, or at
the time of commitment if this occurs less
than ten days before the closing.

E. G U IDELINES TO AN
INTERPRETATIO N OF THE
1973 ACT
The paragraphs above constitute a descriptive
analysis of the provisions of the 1973 Act.
What follows is an analysis of some of the
issues that have arisen under the Act based
upon the experience that the Federal Insurance
Administration has gathered over the past
twenty years and the discussions we have had
with representatives of Federal agencies and
Instrumentalities. The views expressed below
represent our best effort toward providing
guidance and we welcome the views of other
Federal agencies and the Federal Instrumen
talities on these subjects.

1. WHAT IS THE STANDARD BY
WHICH A LENDER SHOULD BE

(a) Significance of the location of the
structure
As pointed out above, the mandatory flood
insurance purchase requirements of the
1973 Act apply only where improved real
property, i.e., a structure, is located in a
special flood hazard area in a community
that is participating in the National Flood
Insurance Program. Such a structure must
be insurable under the NFIP, and under
NFIP rules an insurable "structure" means
any walled and roofed improvement pre
dominately above ground or in the course
of construction. Even though a portion of
real property on which a structure is lo
cated may lie within an area of special
flood hazard, the purchase and notice re
quirements of the 1973 Act do not apply
unless the structure itself, or some part of
the structure is in the special flood hazard
area. Prudence may suggest the wisdom of
the lender's choosing as a matter of its own
discretion to require the purchase of flood
insurance where the distance from the
structure to the edge of the special flood
hazard area is minimal, but such a deci-j
sion is not compelled by the 1973 Act.
(b) Examination of the map
In order to determine whether a structure
is located in an area of special flood hazard
it is necessary to examine the location of
the structure in relationship to the areas ,i
special flood hazard shown on Flood
Hazard Boundary Maps or Flood Insur
ance Rate Maps. However, despite
FEMA's efforts to make the maps as use
ful as possible, the descriptions of special
flood hazard areas contained in some maps
may, in some instances, not be clear enough
to permit lenders to decide with certainty
and precision whether or not property

F ED ER AL EMERGENCY M AN AG E M E N T AGENCY

SUGGESTED LENDER'S NOTICE
SATISFIES NOTICE REQUIREMENTS OF THE NATIONAL FLOOD INSURANCE
ACT OF 1968, AS AMENDED, AND THE FLOOD DISASTER PROTECTION ACT OF 1973
NOTICE TO BORROWER OF PROPERTY IN SPECIAL FLOOD HAZARD AREA

Notice is given t o ___________________________________________________________________ that the

(Borrower)

improved real estate or mobile home described in the attached instrument is or will be located in an
area designated by the Director of the Federal Emergency Management Agency as a special flood haz
ard area. This area is delineated o n ___________________________________________________ ’s Flood

(Community Name)

Insurance Rate Map (FIRM) or, if the FIRM is unavailable, on the Flood Hazard Boundary Map
(FHBMO. This area has a 1% chance of being flooded within any given year. The risk of exceeding the
1% chance increases with time periods longer than one year. For example, during the life o f a 30-year
mortgage, a structure located in a special flood hazard area has a 26% chance of being flooded.
NOTICE TO BORROWER ABOUT FEDERAL FLOOD DISASTER ASSISTANCE
(L e n d e r C h eck O ne)

1 Notice in Participating Communities
The improved real estate or mobile home securing your loan is or will be located in a community
which is now participating in the National Flood Insurance Program. In the event your property is
damaged by flooding in a Federally declared disaster, Federal disaster relief may be available. How
ever, such relief will be unavailable if your community is not participating in the National Flood In
surance Program at the time such assistance would be approved, ( a s s u m i n g y o u r c o m m u n i t y h a s b e e n
i d e n t i f i e d as f l o o d - p r o n e f o r a t lea st o n e y e a r ) . This assistance usually in the form of a loan with a
favorable interest rate, may be available for damages incurred in excess of your flood insurance.
I | Notic- in Nonparticipating Communities
The improved real estate or mobile home securing your loan is or will be located in a community
which is not participating in the National Flood Insurance Program. This means that you are not
eligible for Federal flood insurance. In the event your property is damaged by flooding in a Federally
declared disaster, Federal disaster relief will be unavailable, ( a s s u m i n g y o u r c o m m u n i t y h a s b e e n i d e n
t if i e d as f l o o d - p r o n e f o r a t lea st o n e y e a r ) . Federal flood disaster relief will be available only if your
community is participating in the National Flood Insurance Program at the time such assistance
would be approved.

(Bank Official’s Name)
(Borrower’s Name)
FEMA F 0R M 81 -2

(Date)

( 11 /79)

18 a

Federal Emergency Management Agency
which is the security for a loan or which is
the subject of financial assistance is lo
cated in such an area. It is for this reason
that FEMA has recommended a "Good
Faith Standard".
(c) The "Good Faith Standard"
As in its earlier editions of these Guide
lines, FLA recommends that for the pur
poses of the 1973 Act, a lender's decision,
made in the exercise of due diligence and
good faith as to the location of a property
which is the subject of a loan on such a
map, be considered final and sufficient to
comply with the 1973 Act. In such in
stances, it is FIA's view that where a good
faith finding has been made by a lender or
its agent, acting pursuant to the require
ments of the 1973 Act, that the property is
outside the special flood hazard area, such
finding as to the location of the property
should be considered final with respect to
such property regardless of any change of
ownership of the property or status of the
loan. In FIA's view, under the 1973 Act,
subsequent revision of the map would not
necessitate the making of a new determinaticii or require the lender to go back and
compel the borrower to purchase flood in
surance, even if the new map clearly
showed the structure to be in a special
flood hazard area. However, prudence
might suggest the desirability of so doing.
However, if there should be any subse
quent making, increasing, extension, or
renewal of a loan with respect to which the
property is subject, in FIA's view, the
original finding should remain final only
if the map upon which the original finding
was based was still in effect and unrevised
as to the property in question. Thus, if a
map was subsequently revised, any subse
quent making, increasing, extension, or
renewal of the loan should take into ac
count the new map, and a new determina
tion should be made at that time as to
whether flood insurance must be required
for the subsequent transaction.

(d) Lenders' reliance upon assistance
Lenders may reasonably seek assistance
from firms or individuals, including map
determination service organizations, that
have demonstrated their knowledge con
cerning flood maps, and reasonable reli
ance upon such guidance in the making of
a lender's determination should, for most
practical purposes, be regarded as consis
tent with due diligence and good faith. In
many instances Community officials and
appraisers may be a helpful and knowl
edgeable resource. FIA does not believe
that there would be reason for objection to
having the costs passed on to borrowers if
permitted by the loan contract and appli
cable State and Federal law.
(e) Who must make determinations?
An insurance company, insurance agent
or appraiser is under no statutory or regu
latory duty to make determinations as to
whether a structure is exempt from the
flood insurance purchase requirement and
any "determination" made by them does
not alter the regulatory responsibility of
the lender to make such determinations.
Circumstances could be contemplated in
which an insurance company, insurance
agent or appraiser might have expertise
that a lender would find helpful and per
suasive, but whatever determination is
made remains the full responsibility of the
lender.
(f) What is determined?
The determinations referred to above
address only the question as to whether the
location of a particular structure is within
the area on a map which is designated by
the Federal Insurance Administrator as
being a special flood hazard area (SFHA),
which is the area inundated by a flood
having a one percent chance of annual
occurrence (Zones A, AE, Al-A-30, AH,
AO, V, VE, Vl-30). Any question con
cerning the correctness of the map or
whether the exact location of the structure

Mandatory Purchase of Flood Insurance Guidelines
in the special flood hazard area should
have been designated by the FIA as being
in a SFHA is totally beyond the authority
of the lender.

photocopy of the official map, marked to
show the location of the property would
provide a convenient record.
(h) The ultimate responsibility of the
lender

Only the Federal Insurance Administra
tion can amend an official map to remove
or add a particular property location from
a designated SFHA by a Letter of Map
Amendment, or revise a map by a Letter of
Map Revision to change the special flood
hazard area or revise the elevations on a
map.

But, in all these situations the lender, us
ing such evidence as is reasonable, must
take the responsibility for making deter
minations and redeterminations, regard
less of whether the lender actually makes
the determination or hires someone else to
do it. Because it is the lender that requires
the purchase of flood insurance, only the
lender can make a determination or a rede
termination, and only the signature of a
representative or duly authorized agent of
the lender on Form 81-2 and 81-3 can
make the form take on any significance in
terms of establishing the status of the im
proved real property and providing the
lender with a record of the determination
or redetermination.

(g) How to record that a determination
was made?
FEMA Forms 81-3 and 81-2 were devel
oped by FIA to help lenders notify bor
rowers of their status under the NFIP maps
and to enable them to document any
changes in NFIP maps which may have
altered the boundaries of special flood
hazard areas in such a way as to cause a
borrower's structure to no longer be lo
cated in an area of special flood hazard.
These notices create a record showing that
the lender has made a determination or a
redetermination as to the status of the
borrower's structure and when placed in
the files of the lender demonstrate to ex
aminers of Federal Instrumentalities that
there is a proper basis for a borrower to
have been required to purchase flood in
surance, or permitted not to purchase, or to
drop a flood insurance policy after a map
revision. Additionally, many lenders, as
well as the Federal agencies, such as
FNMA, Freddie Mac, FMHA, HUD and
VA, use the Uniform Residential Appraisal
Report form which contains, amongstother
things, questions on the location of aproperty relative to flood hazard areas. When a
determination is made that a structure is
not in a special flood hazard area, evi
dence should be recorded showing, at the
least, the map panel used, the date and
number of the map, the name of the com
munity, the zone in which the property is
located, and the address of the structure. A

2. SHOULD THE AMOUNT OF
INSURANCE REQUIRED REFLECT
THE VALUE OF LAND?

(a) The 1973 Act refers to buildings and
mobile homes
Section 102(a) of the 1973 Act conditions
the granting of financial assistance by
Federal officers and agencies upon there
being flood insurance coverage with re
spect to "the building or mobile home and
any personal property to which such fi
nancial assistance relates" in an amount at
least equal to "its development or project
cost (less estimated land cost)." Thus this
section of the statute clearly expresses the
intent of Congress that die amount of
insurance be related only to the cost of the
building and not include the cost of the
land. Section 102(b) describes the flood
insurance purchase requirement for lend
ers making conventional loans in terms of
"improved real estate or a mobile home
located or to be located" in a special flood

F EOER AL EMERGENCY M AN AGEM ENT AGENCY

CE RTI FIC ATI ON OF REDETERMINATION OF A P R O P E R T Y ’S LOCATION
RE L A T I V E TO SP EC IA L FLOOD HAZARD AREAS

TO:

_______________________________________

Date:

( N A M E OF G R A N T E E , B O R R O W E R , IN S U R E D )

RE:

(Loan) (Transaction) No: ____________________________

RE:

Flood Insurance Policy No. __________________________

This will certify that, as of this date, authorized personnel of this
institution have examined the latest (Flood Hazard Boundary Map/Flood
Insurance Rate Map) now in effect for _________________________________
(N A M E OF C O M M U N I T Y , C O U N T Y , S T A T E )

effective

_____

and have determined that the property which is the

(DATE)

subject of the above-referenced loan/transaction is not located in a
special flood hazard area as represented on the above-referenced, revised
mao.
Flood insurance had been required as a condition for the loan/transaction
in question because the property was shown as located in a special flood
hazard area on ____________________ 's Flood Hazard Boundary Map/Flood
( N A M E OF C O M M U N I T Y )

Insurance Rate Map effective______ at the time the loan/transaction was
(DATE)

processed.
This institution now deems _____________________________________ waived
( N A M E OF G R A N T E E , B O R R O W E R , IN S U R E D )

from maintaining flood insurance coverage, on the basis of the Federal
Insurance Administration's latest map now in effect for _________________
(C O M M U N IT Y ’S NAME,

_______________ effective ______
COUNTY, STATE)

which in our judgment excludes the

(DATE)

property in question from an identified special flood hazard area.

Address of Institution:

Institution:

_____________________

By: ______________________________
(Authorized Signature)
Federal Agency ____________________
By: _______________________________
(Authorized Signature)

F E M A F O R M 81-3

(11 /79)

CONTROL NO. 593-213
U.S. GOVERNMENT PRINTING OFFICE : 1984 0 - 458-454

20a

Federal Emergency Management Agency
hazard area and uses the language similar
to that in Section 102(a), conditioning the
making of a loan in a participating com
munity upon there being flood insurance
covering "the building or mobile home
and any personal property securing such
loan".
This reference to "buildings and mobile
homes" is consistent with the fact that the
National Flood Insurance Program insures
only buildings, including manufactured
homes (mobile homes), and does not in
sure land. Thus improved real estate, as
used in Section 102(b) of the 1973 Act
means land with a building on it and the
mandatory flood insurance purchase re
quirement applies only to the buildings
and manufactured homes which consti
tute the improvements on the land.
(b) What the NFIP policy covers
Moreover, it should be kept in mind that
the NFIP policy does not provide insur
ance coverage for losses in excess of the
value of a structure. The determination of
whether the loss will be paid bn the basis
of replacement value or actual cash value
depends upon whether the residence is
primary, and whether the insured has pur
chased insurance of up to at least 80% of
thereplacementcostofthestructure. Under
the NFIP policy, "replacement value"
means that the coverage is intended to
include the full cost of repair or replace
ment without deduction for depreciation.
The term "actual cash value" means that
the coverage is intended to include repair
or replacement less depreciation. A dwell
ing which is the principal residence of an
insured may be insured for its replacement
cost value, but secondary residences, con
dominium units in vertical high rise build
ings and commercial buildings may be
insured only for their actual cash value.
In light of the above, in requiring the
purchase of flood insurance the lender
should first calculate the amount of the
loan, or the maximum amount of insur

ance available under the National Flood
Insurance Program, whichever is less.
Having developed that figure, the lender
may, depending upon its view of the flood
risk, take into account the statutory "cap"
of Section 1306(b)(6), which, for example,
limits the mandatory purchase to $70,000
for single-family residential structures).
Then, the value of the land should be
subtracted from the overall value of the
property in reaching a determination as to
the value of the improved property, i.e.,
the structure, that is to be insured. This is
especially significant in cases where the
proposed loan clearly exceeds the value of
the insurable buildings. In instances where
the lender does not take into account sepa
rate valuations of land, which is not insur
able under the NFIP, and improvements,
which are insurable, the insured may, un
fortunately, be paying for coverage that is
in excess of the amount that the NFIP will
pay in the event of a loss. In FIA's view,
lenders should avoid creating such a situ
ation.
(c) What if the loan is secured only by land
upon which there are no structures?
If a lender makes a loan which does not
give the lender a lien on any land upon
which there is a building i.e. improved real
property, no flood insurance purchase
requirement applies. Thus, if a lender can
separate his loan so as to become the
holder of a mortgage that is secured by
land alone, no flood insurance purchase
requirement applies because the NFIP does
not insure land, and the 1973 Act does not
address mortgages secured by land alone.
d) What if a detached garage of a residen
tial property, to which 10 percent of the
principal structure's insurance is appli
cable, is in the special flood hazard area,
while the principal structure is outside of
the special flood hazard area?
Flood insurance on the principal structure
would not be required because of its loca
tion outside the special flood hazard area.

Mandatory Purchase of Flood Insurance Guidelines
But if the detached garage is part of the
security for the loan, flood insurance on
the garage would be required and could be
-purchased through a separate policy on
the General Property form, covering just
the garage. However, if the value of the
principal structure is sufficient to serve as
security for the loan, the requirement would
not apply if the lender was willing to
delete the garage from the description of
improved real property securing the loan.
In agreeing to do this, a prudent lender
would consider the value of the garage and
the likely degree of its exposure to damage
in the event of flooding, as well as whether
the close proximity of the house to the
special flood hazard area raised questions
as to the safety of the house, itself.
If, instead of a detached garage in the
special flood hazard area, there was a tool
shed or similar shack with no foundation
and not attached to the land, such property
would not be insurable under the NFTP.
Being more in the nature of personalty as
opposed to realty, it would not be part of
the security for the loan, and no flood
insurance would be required.

3. WHAT IS THE IMPACT OF THE
FLOOD INSURANCE PURCHASE
REQUIREMENT IF
IMPROVEMENTS ON THE REAL
PROPERTY ARE OF NOMINAL
VALUE, AND THE PURPOSE OF
THE LOAN TRANSACTION IS TO
FACILITATE THE PURCHASE OF
LAND FOR SUBSEQUENT
DEVELOPMENT?
(a) Surplus buildings of nominal value
on land purchased for development
Instances arise when real estate is pur
chased for the purpose of development
and the presence of a structure on the land
is not a factor in the purchase of the land.
In fact, in many such situations, the devel
opers's plan may call for the structure to be
demolished as soon as development oc

curs. But, because the 1973 Act speaks of
"improved real estate" in triggering the
mandatory flood insurance purchase re
quirement, questions are frequently asked
as to whether flood insurance must be
required in such situations. It is FIA's view
that the answers to such questions should
be approached through a view of the pur
poses for which the purchase requirements
of the 1973 Act were adopted, namely to
protect lenders and the Federal resources
against potential losses resulting from un
secured loans, and to protect unwary bor
rowers against financial losses resulting
from uninsured buildings.
In these situations the acquisition of the
building is not the primary purpose behind
the purchase of the land, and frequently
the structure is not intended to remain in
place when the property is developed. If
the value of the building was less than the
NFIP $500 deductible, clearly there would
be no requirement for the purchase of
flood insurance. But, even if the value
exceeded $500, given the fact that the
transaction involves primarily land, this
would be an appropriate situation for
wording the mortgage so as to specifically
exclude such a building as part of the
security for the loan. In this kind of situ
ation where the structure is not being used
for residential or commercial purposes
and where there is no intent to improve it
or use it for such purposes, and where the
loan is adequately secured without includ
ing the building, in FIA's view, the flood
insurance purchase requirement wouldnot
apply.
(b) What if there is a structure in a special
flood hazard area which is being used for
residential or commercial purposes on land
whose value alone would be sufficient to
secure the loan without regard to the value
of the building?
The 1973 Act does not give a lender the
option of enabling the borrower to avoid
the purchase of flood insurance, even

Federal Emergency Management Agency
though the land may be so valuable that it
would provide more than adequate secu
rity for the amount of the loan, without
taking into account the value of the build
ing on the land. If the land has a building
upon it, and the lender has a security inter
est in that building, the Act requires the
lender to require the purchase of flood
insurance to protect its security interest. In
so doing, the lender is also protecting the
government's interests by preserving the
assets of agencies which insure the lender's
deposits.

for coverage, flood insurance must be
purchased. Therefore, where a develop
ment loan is made for the purpose of
constructing insurable improvements on
land, flood insurance coverage must be
purchased to keep pace with the new con
struction. The only practical way of im
plementing the flood insurance coverage
is to require the purchase of the policy at
the time that the development loan is made
and requiring that the policy be purchased
to cover the eventual value of the property
to be constructed.

Since October 1, 1986, buildings that are
in the course of construction but have yet
to be walled and roofed are eligible for
flood insurance, subject to certain under
writing restrictions. The 1986 regulations
and policy changes resolved a prior prob
lem which arose out of the fact that lend
ers had to require the purchase of flood in
surance policies that could not provide
any coverage until a future date when the
building would be considered to be walled
and roofed. This significant change recog
nizes the flood peril faced by a builder
during the process of construction and
brings the NFIP more into conformity
with the practices of fire insurers by pro
viding insurance coverage that begins
during the period of time when construc
tion is taking place. Unless defined stages
of development can be identified, the most
practical way of implementing the flood
coverage may be to require the purchase
of the policy at the time that the develop
ment loan is made and funds are dis
bursed.

It should be kept in mind that the NFIP has
a minimum $500 deductible, which means
that if the actual cash value of a structure,
taking into account depreciation, did not
exceed $500, the structure would for prac
tical purposes be uninsurable because there
could never be any claim payment in the
event of flood damage. It should also be
kept in mind that the NFIP insures only
walled and roofed structures which are
principally above ground and are perma
nently affixed to sites. Also eligible are
silos andgrain storage buildings, andbuild
ings in the course of construction, i.e.
under construction, but before they have
become walled and roofed. Buildings are
walled and roofed when they have two or
more rigid external walls in place and are
roofed and adequately anchored so that
they will resist flotation, collapse and lat
eral movement.
The Flood Insurance Manual lists as ineli
gible for insurance coverage gazebos,
pavilions, pole bams, pumping stations,
and storage tanks, and thus, the presence
of such structures would not give rise to
any question as to the purchase of flood
insurance.
(d) Buildings in the course of construction
However, when a structure is to be built
which when completed will be a walled
and roofed structure that will be eligible

For new construction in Regular Program
communities, where elevation certificates
are required, the certificate and the pre
mium will be based upon an elevation
figure derived from construction draw
ings. However, the policy will not be
renewed until a new certificate based upon
actual construction has been submitted. In
any event, the point of the 1986 change is
that coverage under the policy becomes

Mandatory Purchase of Flood Insurance Guidelines
available immediately when the construc
tion starts and is not delayed until the
building has reached a roofed and walled
condition.

lives and the protection of property and
the public health and safety. Such emer
gency assistance would not include disas
ter assistance and government loans.
(b) Section 1316 of the 1973 Act and
buildings in violation of state or local laws

4. WHAT ARE THE CONSEQUENCES
IF A STRUCTURE IS LOCATED IN
A COMMUNITY THAT IS
PARTICIPATING IN THE
NATIONAL FLOOD INSURANCE
PROGRAM, BUT FLOOD
INSURANCE IS NOT AVAILABLE
WITH RESPECT TO THAT
PARTICULAR STRUCTURE?
It is the view of FIA that in using the words "the
sale of flood insurance has been made avail
able" the Congress meant the mandatory flood
insurance purchase requirement of Section
102 (b) to address the situation where FIA,
through the NFIP, offers to sell a flood insur
ance policy to the owner of the particular struc
ture that is the subject of the transaction. Where
the Federal government has chosen to limit the
availability of flood insurance in a participat
ing community, the inability of the property
owner to purchase flood insurance does not
require a lender to refrain from making a con
ventional loan with respect to that property.
(a) Coastal Barrier Resources Act
There are several reasons why flood insur
ance might not be available to a particular
structure. One of the most significant is
the Coastal Barrier Resources Act (CO
BRA), Public Law 97-348, mentioned
above, which was adopted by Congress in
October of 1982 to reduce or restrict
Federal government actions that were be
lieved to be encouraging the development
of certain coastal barrier areas, including
both islands and mainland property, that
are currently undeveloped. While CO
BRA does not prevent private financing
and development, it limits financial assis
tance by Federal agencies on undeveloped
coastal barriers, except for enumerated
situations such as assistance for emer
gency actions essential to the saving of

Another statutory provision which pro
hibits the sale of flood insurance as to
particular properties is Section 1316 of the
1968 Act (42 USC Section 4023) which
prohibits the sale of new flood insurance
for any property which the Director finds
"has been declared by a duly constituted
State or local zoning authority, or other
authorized public body, to be in violation
of State or local laws, regulations, or ordi
nances which are intended to discourage
or otherwise restrict land development or
occupancy in flood-prone areas." Ques
tions have arisen as to whether a conven
tional loan can be made when the building
is located in a special flood hazard area of
a community that is participating in the
NFIP, but where the particular building is
not eligible for flood insurance protection
because it has been declared to be in vio
lation of local floodplain management
building codes. Under Section 102 (b) of
the 1973 Act, which makes the flood in
surance purchase requirement applicable
to properties to which flood insurance has
been made available, the making of a con
ventional loan would not be prohibited
with respect to a building cited under
Section 1316 of the 1968 Act Neverthe
less, compliance with the provision noti
fying the borrower that the building is in a
special flood hazard area would be espe
cially important.
It is important that Federal Instrumentali
ties and lenders subject to their jurisdic
tion be aware that properties which come
under the provisions of Section 1316 of
the 1968 Act because of violations which
relate to protection against flooding will,
in most cases, be highly susceptible to
flood damages, and are a far greater risk to

Federal Emergency Management Agency
the lender than structures that are compli
ant with floodplain management ordi
nances.

interpreted the Act as including not only the
origination of mortgage loans, but also the
purchase of mortgage loan portfolios in the
secondary market and participations thereof.
Thus, under this view purchased mortgage
loans secured by improved property in a SFHA
must be covered by flood insurance, where ap
plicable, unless the original loan was made
pursuant to a formal loan commitment issued
prior to March 2, 1974.

(c) Section 1316, as applicable to Federal
Officers and Agencies
Questions have arisen as to the applicabil
ity of Section 1316 to Section 102(a),
which applies to the approval of financial
assistance by Federal officers and agen
cies. Federal officers and agencies should
make their own determinations as to
whether they should approve financial as
sistance with respect to a building that the
community has declared to be in violation
of local ordinances designed to reduce the
peril of flood damage to such building.
And in coastal barrier areas they must con
sider the restrictions placed on Federal
assistance by COBRA.

On the other hand, the Federal Deposit Insur
ance Corporation, the Federal Reserve Board
and the Comptroller of the Currency have
interpreted the Act to apply only to the origi
nation of mortgage loans and not the purchase
of mortgage loans in the secondary market.
Lenders should, therefore, follow the interpre
tations of the particular Federal Instrumental
ity to whose examinations they are subject for
authoritative guidance. In FIA's view, the term
"where applicable", as used in connection with
the position that the statute does apply to the
purchase of mortgages, means that such a re
quirement pertains only to mortgage loans
involving improved real property in areas of
special flood hazard in communities partici
pating in the National Flood Insurance Pro
gram, and in which flood insurance is thereby
available through the NFIP.

(d) NFTP underwriting restrictions on
eligibility for flood insurance
In addition to COBRA and Section 1316
of the 1968 Act, there are policy provi
sions and underwriting rules of the Stan
dard Flood Insurance Policy sold under
the NFIP which preclude certain proper
ties from eligibility for coverage. For
example, structures built over water can
not be insured under the Program, nor can
boat houses. The NFIP coverages also
contain restrictions on insurance cover
age, such as the portions of homes consist
ing of finished basements where only enu
merated and limited coverage is available.

5. THE APPLICABILITY OF THE 1973
ACT TO THE PURCHASE OF
MORTGAGES BY LENDERS
Among the Federal Instrumentalities two dif
ferent views have been expressed on the sub
ject of the applicability of the Act to transac
tions involving the purchase of mortgages by
lenders. The Federal Home Loan Bank Board
has taken a position which is similar to that ex
pressed by the Federal Insurance Administra
tion in FLA Guidelines dated 1978, and has

6. ACCEPTANCE OF PRIVATE
FLOOD INSURANCE POLICIES TO
MEET STATUTORY
REQUIREMENT AND THE
ACCEPTANCE OF NFIP "WRITE
YOUR OWN POLICIES"
FLA would welcome the availability of ade
quate flood insurance from the private insur
ance market. Had adequate and assured flood
insurance protection been available through
the private insurance market in 1968, the NFIP
might not have been necessary. To give the
public the benefits of the marketing and serv
icing expertise cf the private insurance indus
try, FLA has since 1983 been making flood
insurance available through the NFLP "Write
Your Own" Program (WYO) which enables

Mandatory Purchase of Flood Insurance Guidelines
the public to purchase the same NFIP coverage
from private companies that have agreed to
enter into agreements with FIA.

and must include information as to the
availability of flood insurance coverage
under the NFIP.

The coverage, eligibility and premiums are the
same on WYO policies as in the case of poli
cies that are issued directly by the FLA. through
its servicing company. The FIA has guaran
teed that in the event that any WYO company
is required by State regulatory authorities to
cease writing insurance and is unable to pay
flood insurance claims under any WYO pol
icy, FLA will assume all obligations for the
payment of covered claims under that policy.
Thus, lenders and insureds should not hesitate
to accept NFIP policies written either directly
by FIA or through a WYO company.

(d) The policy should guarantee that the
flood insurance coverage, considering both
deductibles and exclusions or conditions
offered by the insurer, is at least as broad
as the coverage offered by the NFIP poli
cies.

In the event of a submission of a flood insur
ance policy that is not issued by the NFIP
through FLA or a WYO company, FLA be
lieves that the following criteria should be met
with respect to any flood insurance policy
submitted to a lending institution or a Federal
agency in purported satisfaction of the insur
ance purchase requirements of the 1973 Act.
(a) The insurer should be licensed to do
business in thejurisdiction where the prop
erty is located, by the Insurance Depart
ment of that jurisdiction, except as indi
cated in (b) below.
(b) In the case of a non-residential com
mercial property insured pursuant to a
policy of difference in conditions, mul
tiple peril, all risk, or other blanket cover
age, it should be sufficient if the insurer is
recognized, or not disapproved, as a sur
plus lines insurer by the Insurance Depart
ment of the jurisdiction where the prop
erty is located.
(c) The flood insurance policy issued by
the insurer should include an endorsement
which requires that the insurer give 30
days written notice of cancellation or non
renewal to the insured with respect to the
flood insurance coverage and that to be ef
fective such notice must be mailed to both
the insured and the lender or Federal agency

(e) Lenders should satisfy themselves that
a mortgagee interest clause similar to that
contained in NFIP policies is contained in
the policy. In the opinion of the FIA, an
insurance policy that meets all of the above
criteria meets the insurance purchase re
quirements of Section 102 of the 1973
Act. To the extent that the policy differs
from the FIA policy, the differences should
be carefully examined before considera
tion is given to acceptance of the policy as
sufficient protection under the 1973 Act.

7. LENDERS' REMEDIES IN THE
EVENT OF PRIOR FAILURE TO
REQUIRE FLOOD INSURANCE
The history of the NFIP since the enactment of
the 1973 Act indicates that lenders have not
consistently required the purchase and renewal
of flood insurance policies as required by
regulations issued by Federal Instrumentali
ties pursuant to the 1973 Act. Questions arise
as to what steps are available for lenders whose
attention has been directed to the situation at a
later time. The issue has been raised to FIA
with growing frequency that because of the
rapid turnover of the servicing of mortgages,
some loan originators may be paying little or
no attention to the flood insurance purchase re
quirement because the servicing is sold so
quickly.
This could result in no flood coverage being
written to protect the interests of either the
mortgagor or the mortgagee. It also means that
any subsequent servicer of that loan would be
provided with no basis upon which it can know
that the property is located in the floodplain

Federal Emergency Management Agency
and therefore maintain the flood insurance cov
erage. Also when a flood insurance policy is
written in conjunction with a closing, FIA fears
that subsequent servicers may not be notifying
the insurance agent who originally wrote that
policy of the change in mortgagee (or servicer)
to enable renewal and/or cancellation notices to
be sent to the proper party (lender) servicing the
loan.
Thus, in the case where the insurance payments
were notescro wed, the mortgage servicer would
have no way of knowing whether or not the
borrower continued to renew the policy or
allowed it to lapse. Lenders selling mortgages
in the secondary market to FNMA, FHLMA or
GNMA, (Federal Agencies under the 1973
Act) should be aware that those Agencies will
be requiring that the security for such mort
gages in special flood hazard areas be protected
by flood insurance. The remedies available to
the lenders will vary depending upon the lan
guage in the loan agreements. Most mortgages
require that the borrower obtain and maintain
hazard insurance. This provision was origi
nally developed with a view to fire insurance at
a time when flood insurance was not available.
But in light of the fact that flood insurance
under the NFIP has been offered for twenty
years, the term "hazard insurance" should be
broad enough to include flood insurance. On
the basis of discussions FIA has had with Fed
eral Instrumentalities and the U. S. Department
of Housing and Urban Development, it is
FEMA's view that, if the loan agreement is
specific in requiring hazard insurance, that
provision, especially when coupled with the
regulatory obligation upon the lender to require
the borrower to purchase flood insurance, gives
the lender ample authority to require the bor
rower to purchase flood insurance, even at a
date subsequent to the date on which the loan
was initiated. On the basis of these same discus
sions, FEMA believes that if the borrower
refused to purchase flood insurance, the bank
would be justified in purchasing the insurance
for the borrower and charging the borrower for
the cost. In the case of loans that are being paid
off through escrow agreements, this process

would be greatly facilitated. For new construc
tion in Regular Program communities, NFIP
rules require the submission of an elevation
certificate with the application, and that cer
tificate is, in FEMA's view, a cost of the pro
curement of flood insurance.
FIA's same discussions lead FEMA to con
clude that, where appraisal procedures include
an analysis as to whether the improved real
estate is in a special flood hazard area, the costs
attributable to that process would be proper
expenses in connection with the costs of ap
praisal. FIA is in the course of exploring the
feasibility of a forced-placement capability
for flood insurance to facilitate the prompt
procurement of flood insurance when there is
doubt that flood insurance has been purchased
or kept in force by the borrower.

8. HOME EQUITY LOANS UNDER
THE 1973 ACT.
The currently popular Home Equity Loans are
clearly secured loans of the kind covered under
the 1973 Act and trigger the flood insurance
purchase requirement. The simplest way in
which a lender could protect its interests and
comply with the purchase requirements would
be to consider that, when the bank has filed its
hen, based on the signing of the Home Equity
Loan agreement, the purchase of insurance
becomes mandatory to the amount of the loan
authority (subject to the limit on insurance
available and the insurance requirement cap)
if the improved real property is located in a
special flood hazard area of a participating
community. This procedure would be similar
in concept to the way in which many mortgage
lenders have typically handled their property
insurance requirements for building construc
tion loans prior to the existence of an actual in
surable building. However, the difficulty with
this solution lies in the fact that the Home
Equity Loan is more like an approved line of
credit to be utilized in the future. A borrower
could argue that so long as the lender has not
paid out any money, there is no flood exposure
and consequently no flood insurance purchase

Mandatory Purchase of Flood Insurance Guidelines
requirement. But to impose the requirement
each time that a borrower drew a check on his
loan authority might be administratively diffi
cult. An alternative, therefore, might be for the
lender to examine its books each calendar
year, and when a loan has actually been made
under the Home Equity loan authority, require
flood insurance to protect that loan on the basis
of the information at year end. The Lender
would then require updates each year to take
into account additional loans actually made
during the preceding year. While this would
create a time lagin the procurement of flood
insurance, it would seem to tie the requirement
directly into the use of the funds. It is the view
of FIA that such flexibility of compliance op
tions would be reasonable, considering that
the statute may not have been enacted with the
Home Equity Loan concept in mind. In any
event, the Federal Instrumentalities have the
final responsibility for determining how Home
Equity Loans shall be handled under the 1973
Act.

9. FEDERAL FINANCIAL
INSTITUTIONS EXAMINATION
COUNCIL INTERAGENCY
EXAMINATION PROCEDURES
AND EXAMINER CHECKLIST FOR
COMPLIANCE WITH THE
MANDATORY FLOOD INSURANCE
PURCHASE REQUIREMENTS OF
THE FLOOD DISASTER
PROTECTION ACT OF 1973
EXAMINATION OBJECTIVES:
1. To determine whether an institution
has established an effective system for
ascertaining whether property that secures
a loan requires flood insurance.
2. To determine whether the institution
provides the required flood insurance
disclosures.
3. To determine whether the institution
maintains sufficient records to evidence
compliance with the flood insurance re
quirements of its supervisory agency.

EXAMINATION PROCEDURES
1. Determine whether any of the com
munities in the institution's trade areahave
designated special flood hazard areas, and
whether or not any of the communities are
participating in the National Flood Insur
ance Program.
2. Review the institution's policies, both
written and informal, and internal controls
concerning flood insurance, particularly,
the method used by the institution to make
the flood hazard determination. Interview
the appropriate personnel to ascertain that
these policies are implemented in the
prescribed manner.
3. Obtain and review copies of the fol
lowing:
a. All records and other informa
tion, i.e., flood maps and appraisal
forms, used to determine whether
improved real estate or mobile homes
are located in the special flood hazard
areas. Check these records to deter
mine whether they are up-to-date. If
the institution uses flood maps, verify
that the institution has a flood map for
each community in the trade area.
b. Written notices (forms) that in
form borrowers that the property se
curing a loan is in a special flood
hazard area and whether or not federal
disaster relief assistance will be avail
able if the property is damaged by
flooding (refer to sample notices).
c. Written acknowledgements from
borrowers indicating their understand
ing that the property securing the loan
is or will be located in a special flood
hazard area and that they have re
ceived the notice regarding the availa
bility of federal disaster relief assis
tance.
4. Review an adequate sample of loan
files to ascertain:

Federal Emergency Management Agency
a. that the institution's stated method
of determining whether loans secured
by improved real estate or a manufac
tured home are located in a special
flood hazard area is followed in prac
tice;
b. that the institution requires flood
insurance for covered loan related
property located in a special flood
hazard area of a community that par
ticipates in the National Flood Insur
ance Program;
c. that the institution does not make
covered lo ans located in a special flood
hazard area if the community does not
participate in the National Flood In
surance Program and the loan is in
sured or guaranteed by an agency of
the Federal government, such as the
Federal Housing Administration, the
Veterans Administration, and the
Small Business Administration;
d. that sufficient flood insurance
coverage is provided when flood in
surance is required; and
e. that proper notifications are fur
nished to borrowers, as well as written
acknowledgements are received from
borrowers, within the required time
limits.
f. that lapsed policies are renewed
where applicable.
5. Determine whether the institution has
taken steps to correct violations regarding
flood insurance which may have been
cited in previous examinations.

EXAMINATION CHECK LIST
1. Does the institution offer or extend
consumer or business loans (purchase or
nonpurchase)* that are secured by im
proved real property or manufactured
homes as defined in the provisions of the
National Flood Insurance Program, and if
yes, does areview of loan records indicate

that covered loans are offered or extended
in communities with officially designated
special flood hazard areas which refer to
an official Federal Emergency Manage
ment Agency eligibility list? If yes, com
plete the following sections:
Yes

* The Federal Deposit Insurance Corpora
tion, the Federal Reserve Board, and the
Comptroller of the Currency interpret the
term "financial assistance" to include only
the origination of mortgage loans and not
the purchase of loans.

METHODS OF FLOOD HAZARD
DETERMINATION
2. Does the review of records indicate
the use of a satifactory method of making
flood hazard determinations?
Yes

3. Is a proper method used by branch and
subsidiary offices?
Yes

4. If the institution makes the flood de
termination (and does not have this func
tion performed by an outside agentthrough
a contract), are all current flood maps
maintained for all communities in the
institution's trade area.
Yes

5. Does the institution ensure that flood
insurance is obtained where appropriate?
Yes

6. Indicate the method(s) used to make
special flood hazard area determinations.

CONSUMER NOTIFICATION
PROCEDURES
7. Does a review of forms and proce
dures indicate that proper written notices
are provided in connection with covered
loans?
Yes

Mandatory Purchase of Flood Insurance Guidelines
8. If the institution does not provide such
notification, does it obtain satisfactory
written assurances from a seller or lessor
that the borrower has been properly noti
fied of the fact that the property is located
in a special flood hazard area prior to the
execution of the agreement.
Yes

10. Prior to closing, does the institution
obtain a satisfactory written acknowledge
ment from the borrower that the improved
property or manufactured home securing
the loan is or will be located in a special
flood hazard area?
Yes

11. Indicate the method(s) of notification
used.

SUFFICIENCY OF COVERAGE
12. Does a review of files (or procedures)
indicate that a sufficient amount of flood
insurance coverage is required of loans
granted within communities in:
a.
Yes

the Emergency Program
No

b. the Regular Program
Yes

13. Does areview of files (or procedures)
indicate that insurance policies are re
newed annually? (Refer to workpapers
from past examinations and list applicable
customer names.)
Yes

NONPARTICIPATING COMMUNITIES
14. If the institution grants federally re
lated loans (such as Federal Housing
Administration, Veterans Administration,

Yes

15. Are proper notices of the unavailabil
ity of Federal Disaster relief assistance
(conventional loans only) given to bor
rower whose property is located in a spe
cial flood hazard area of a non-participat
ing community?

9. Are notifications provided within the
required time limit?
Yes

and Small Business Administration loans)
does it refrain from granting such loans
when the property securing die loan is or
will be located in a special flood hazard
area of a nonparticipating community?

Yes

F. THE R EQ UIREM ENTS OF
THE 1973 ACT AS TO
CO ND O M IN IU M S
1. Insurance/Property Repair Respon
sibility of Condominium Associations
Condominiums Associations, by both
State law and association by-laws, typi
cally have the responsibility to purchase
and maintain adequate insurance on
their buildings and common areas of
those buildings. In addition, they also
have the responsibility to make repairs
to all commonly owned property, re
gardless of whether or not there is ade
quate insurance to cover damage to the
property.
However, it must also be kept in mind that,
typically, it is the condominium associa
tion unit owners who actually own prop
erty. In almost all situations, the condo
minium association itself does not own
the property, but is only the governing
body for the condominium and contractu
ally responsible for representing and pro
tecting the unit owners' undivided inter
ests in the common areas. The "condo
minium" in the aggregate sense, therefore,
would be the collection of property rights
comprising all individual units and com
mon elements.

Federal Emergency Management Agency
From an insurance point of view, the rep
resentative capacity of the condominium
association gives it the insurable interest
in common areas, and even gives it the
right to purchase coverage on individual
units as a means of protecting the entire
condominium community. It is only in
that sense that the association might be
thought of as having a quasi-ownership
interest.
In the past, Associations have tradition
ally fulfilled their insurance responsibility
by purchasing some form of master "Dif
ference in Conditions" policy. Because of
the unique nature of condominium owner
ship, these policies have provided protec
tion for the structural portion of the build
ings, usually including most of the inter
nal portions of the individual units as well.
Individual policies were also available
from the private insurance industry, but
typically provided coverage for the unit
owner and only for things unique to him,
such as his contents and physical surface
changes made by him to the internal por
tion of his unit, such as new wall, floor or
ceiling coverings, all of which was of little
interest to the lender as their mortgagee
interests were considered protected by the
Association's master policy.
2.

Lender’s Interest

The interests of individual lenders in the
mortgages they have provided on individ
ual units have typically been satisfied by
obtaining evidence of the existence of
these master insurance policies, even
though the Associations, unlike the unit
owners, normally do not have mortgages.
Such insurance by Associations has proven
a convenience to lenders slice, in essence,
full hazard insurance coverage is provided
through one policy, alleviating the need to
deal with a separate policy for each indi
vidual unit's mortgage.
3. Nature of Condominium Ownership/Lenders Exposure

The concept of condominium ownership
shapes not only the nature of the bor
rower's exposure to insurable risk, but
also the kind of property interest that the
lender receives as security for the loan.
While the owner of a unit in a condomin
ium building, especially in the case of a
townhouse, may appear to have the same
kind of property interest as the owner of a
separately owned detached house, there
is, in fact, a vast difference between their
interests.
In its simplest terms, the owner of a con
dominium unit does not have exclusive
ownership of the walls, floor and roof of
his residence or of the land upon which it
rests. His exclusive property interest is
limited to the space within the walls, floor
and roof. Although he typically retains the
exclusive right to occupy and sell his unit,
all of his other interests in the common
areas of the condominium are shared in
common with the owners of the other units
owned by the members of the condomin
ium association.
There are various kinds of structures in
volving condominium ownership. A con
dominium building may be a vertical,
multiple story unit building (often called
a "high rise"), a townhouse or row house
or, infrequently, a single unit building.
The ownership interest of a purchaser of a
unit usually includes (1) the airspace in the
individual unit; (2) certain property at
tached to the building but within the unfin
ished perimeter walls, floor and ceiling of
the unit; and (3) an undivided interest with
all other unit owners in the common ele
ments.
The items attached to the building within
the perimeter walls, floor and ceiling, are
often referred to as "improvements and
betterments" or "additions and better
ments", which include floor, wall and
ceiling coverings, cabinets, wallpaper,
paneling, fixtures, built in appliances,

Mandatory Purchase of Flood Insurance Guidelines
repair and/or reconstruction can be ob
tained from the association's own funds
and from the proceeds from claims filed
against insurance policies and/or assess
ments levied against the individual unit
owners.

partition walls, tubs, toilets, sinks, counter
areas, etc. If a flood damages one or more
units in a condominium building, and the
individual unit owner of a damaged unit
sustains damage to the improvements and
betterments within his unit, he is not en
titled to financial assistance from his fel
low unit owners as to such property and
must look to his own insurance protection.

But unlike the owner of a detached indi
vidually owned non-condominium home,
he is not primarily responsible for repair
ing the common elements in which he has
an undivided interest, such as building
walls, roofs, floors, stairways, lobbies,
lawns, parking lots, sidewalks, and rec
reational facilities. Because of the multi
plicity of these ownership interests, a con
dominium association is typically the
corporate entity responsible for the opera
tion, maintenance and repair of a condo
minium. Its membership is made up of the
condominium unit owners, all of whom
collectively have an obligation to each
other to maintain and repair the com
monly owned property. This specific ob
ligation is customarily authorized and
spielled out in the by-laws of an associa
tion and is included in the condominium
unit owner's contract agreement which
requires each unit owner to pay a propor
tionate share of the amount of money
needed to perform maintenance and re
pair, as well as other administrative and
operating expanses, including the build
ing up of reserves. They are usually col
lected monthly in order to provide a dep>endable source of operating funds for the
association.
The by-laws and unit owner's agreement
will also confer upon the Board of Direc
tors of an association the authority, fol
lowing loss or damage to the common
elements, to levy special assessments, as
necessary, to provide for the repair or re
construction of loss or damage to th"
common elements. Thus, the funds for

Peril of Flood

Traditionally, the p>eril of flood was cov
ered in the Difference in Conditions poli
cies mentioned earlier. Associations that
wished even more complete protection
against the peril of flood than these poli
cies offered, i.e., coverage for the deduct
ible, would also purchase a policy under
the NFIP for each building in the
floodplain. The motivation for such pur
chases stems from the fact that Associa
tions have the responsibility to purchase
insurance in general to protect their prop
erty. Thus, it was not driven by lender's
insurance requirements piaced on individual unit owners. However, those require
ments were nonetheless able to be satis
fied by that broad policy coverage pur
chased by the ssociation.
As a result of this, few individual flood
insurance policies were purchased under
the NFIP covering the individual mort
gages issued by lenders for units involv
ing condominium ownership in buildings
located in flood hazard areas, as such
coverage was evidently deemed by lend
ers to be unnecessary and possibly dupli
cative.
5.

Changes in the market place

In the mid 1980's, conditions lith e prop
erty insurance market changed, however,
resulting in insurance companies either
not continuing to offer such broad based
coverage at all or continuing to offer such
coverage, only on a much more limited
basis and virtually without any protection
from the p>eril of flood. At that time Asso
ciations, insurance agents, and lenders
began to bring the issue to the attention of

Federal Emergency Management Agency
the Federal Insurance Administration. This
brought focus on the flood insurance
available from the FIA, as more and more
the NFIP became virtually the only flood
insurance available for most types of resi
dential property.
6. NFIP Coverage - Satisfying Lender
Requirements
In one sense, in a manner similar to that
followed in the private insurance sector,
the NFIP has provided two different poli
cies, one for individual unit owners, re
gardless of the type of configuration
employed for their units, and another for
the Associations. Unlike the private insur
ance sector, however, the insurance poli
cies of the NFIP can only be issued as
authorized by the National Flood Insur
ance Act of 1968, as amended, and, conse
quently NFIP policies are required to have
various limitations and differences that
distinguish them from insurance policies
provided by the private insurance sector.
Most significantly, NFIP insurance poli
cies are limited as to the amount of cover
age that they can provide for individual
unit owners as well as for the Association.
Again, as differentiated from the insur
ance coverage provided by the private
sector, the NFIFs unit owner policy pro
vides coverage for the unit owners's inter
est in the common areas of all buildings
"owned" by the Association, as well as for
the internal portion of his own unit.
7. Residential Coverage - Unit Owner
Regardless of the type of building a resi
dential condominium unit may be located
in, the NFIP considers the unit to be a
single family dwelling (except for the
limitation of its value to actual cash value
rather than replacement value). The unit
owner can purchase in his own name a
flood insurance policyon his unit within a
building involving condominium owner
ship. In addition, if the unit owner has not

already insured that same unit, the condo
minium association may separately insure
a particular unit in the name of the owner
of record, specifying the unit number and
the name of the association, as their inter
ests may appear. This would provide the
same kind of coverage as could be pur
chased individually by the unit owner.
Such a policy will cover the improve
ments and betterments the unit owner has
made within that unit. It will also respond
to assessments levied upon the residential
unit owner by his condominium associa
tion for flood damages which occur inthe
building in which the unit owner resides as
well as the structural and or common ele
ments of other buildings owned by the
condominium association for the repair of
which he may be subject to assessment.
However, because the NFIP policy does
not cover lawns, parking lots, sidewalks
and other improvements away from the
building, the portion of any assessment at
tributable to damage to such items would
not be covered under an NFIP policy.
Insurance policies covering an individual
residential unit are available in amounts
up to the limits of coverage, and at the
rates available, for a "single family"
dwelling, regardless of the type of build
ing in which the unit is located. But it must
be noted that only those residential condo
minium units that are separate structures
or are located in a townhouse or rowhouse
configuration are eligible for replacement
cost coverage.
However, coverage is available to owners
of units in other types of buildings, includ
ing high rise condominium buildings, on
an actual cash value basis. Building cover
age under a unit owners policy applies
first to his or her individually owned build
ing improvements and betterments and,
then, to the damage to the building's over
all common elements* which are the unit
owner's responsibility and for which he or
she is subject to assessment.

Mandatory Purchase of Flood Insurance Guidelines
The unit owner's policy described above
will cover the owner's personal contents,
such as furniture, but only if separate
contents coverage is purchased by the unit
owner.
8. Residential Coverage - Condomin
ium Association
However, inasmuch as the unit owners
collectively have the responsibility of
repairing the common elements, the con
dominium association has been the tradi
tional logical entity to be the purchaser of
flood insurance. By insuring the overall
condominium structure, the Association
can reduce the likelihood that it will have
to assess unit owners for funds with which
to make repairs. A condominium associa
tion may, in addition to purchasing poli
cies on each individual unit, purchase
insurance coverage on a residential build
ing containing five or more units under a
separate General Property Form. The
policy will cover building common ele
ments as well as the building elements
(improvements and betterments) within
all units in the building.
The reason that condominium associa
tions had to purchase the the General
Property Form and supplement it with
separate policies on the individual units is
that the statute governing the NFTP limits
the amount of coverage availableonmultiunit residential buildings to only $250,000,
without regard to the size, value or type of
ownership involved. This has posed a
problem because such an amount is in
most cases NOT sufficient to meet the
collective, individual, and statutory flood
insurance requirements with respect to all
the mortgages for all the units located in a
specific building.
For this reason, FLA has encouraged lend
ers to treat the flood insurance require
ment on individual mortgages for individ
ual units in buildings involving condo
minium ownership in the same way as

they would for single family detached
properties, and to require that flood cover
age be purchased to protect their interests
in those mortgages by having unit owners,
or the Association, purchase individual
unit owners Dwelling Policies. When this
practice is followed, there should be every
reason to believe that the mandatory flood
insurance purchase requirement for lend
ers has been satisfied.
9. Condominium M aster Policy
(CMP) Under the NFIP
Beginning in early 1989, FLA made avail
able to Condominium Associations, only,
a Master Policy that provides flood insur
ance coverage on each residential condo
minium building separately, on one form,
in much the same way that the private
sector does for other hazards, without im
posing the burden of purchasing individ
ual policies for each unit. Initially this
policy is being made available only for
such buildings with three or more floors
and five or more units. In addition to these
benefits, the cost of such a policy will in
most cases be significantly less expensive
than the cost of multiple individual poli
cies, while at the same time providing
even more coverage, at the lower price.
The rationale for making the Condomin
ium Master Policy available at a lower
cost is that by offering a more attractive
and comprehensive policy, the NFIP will
be in a position to issue more policies that
will be in amounts reflecting the total
value of the insured properties rather than
issuing policies which cover only a frac
tion of the total value of the properties. In
insurance terminology this is referred to
as realizing "more insurance to value".
This should prove to be a great advantage
to lenders, Associations, unit owners and
insurance agents as it will provide more
complete flood insurance protection for
less cost. In short, in a greatly simplified
fashion it will assist the unit owners and

Federal Emergency Management Agency
their mortgage lenders in meeting the man
datory flood insurance purchase require
ments.
Mortgage lenders should realize, how
ever, that it would be impractical to expect
that every mortgagee with an interest in
one or more units in such buildings will be
able to be listed as such on the CMP. As
sociations that purchase this policy inmost
cases do not have a mortgage on the prop
erty, and therefore would have no reason
to list mortgagees on such policies. Other
propertyinsurance policies purchased by
associations in the private sector to protect
such buildings against other perils, typi
cally, do not list mortgagees for the above
reason, as well as because of the practical
aspects of the difficulty the insurers would
have in keeping current with the names
and addresses of all such mortgagees. Thus,
the protection that exists for the interests
of the mortgagees on their mortgages in
condominium buildings under Master
Policies purchased in the private sector
has always had to consist of the fiduciary
responsibility that is placed on the asso
ciation's Board of Directors in the ByLaws of the associations for insuring the
property and maintaining the property in a
proper state of repair.
10. Non-Residential Coverage - Con
dominiums
Individual units in multi-unit nonresidential condominium buildings are treated
differently by the NFIP. The commonly
owned structural elements of such build
ings, together with any community owned
contents for that building, may not be
insured by the individual unit owners.
They may, however, be insured in the
name of the association. Owners of nonresidential units may purchase individual
contents coverage in their own name for
their own contents.

11. Coverage Options - For Lenders
(a) Individual Dwelling Policies - A
lender can require the borrower to
purchase and maintain an individual
Dwelling Policy for the appropriate
amount, as discussed previously.
(b) General Property Policy - A lender
might accept evidence of a General
Property Policy purchased by the
association. However, as mentioned
previously, the coverage limits avail
able under this policy are only
$250,000, and that amount is the total
for the entire building. It is therefore
unlikely that this will be sufficient in
surance to cover all mortgages in the
building. Even though such an amount
might appear to be sufficient to cover
an individual mortgage, its actual
ability to provide protection with re
spect to that mortgage will have to be
significantly reduced at the time of
loss, as any benefits arising out of that
coverage will be shared with all of the
other unit owners in that building,
regardless of whether or not they have
a mortgage.
N O T E : LE N D E R S SHOU LD B E
CAUTIO NED TH A T T H E Y
SHOULD N O T A C C E P T
E V ID E N C E O F THIS PO LICY
A S AU TO M ATICALLY
F U L FIL L IN G THEIR
STATUTO RY R EQ U IR EM EN T
W ITHOUT F U R TH E R
REVIEW IN G T H E P O U C Y 'S
D ETA ILS A S TO T H E AM O UNT
O F C O VER A G E BEIN G
PR O VID ED E A C H U N IT IN
TH A T B U ILD IN G .

(c) Condominium Master Policy - A
lender could accept evidence of this
policy being purchased by the asso
ciation to meet the lenders regulatory
requirement. The lender should be

Mandatory Purchase of Flood Insurance Guideline?
careful to assure that the amount of
coverage purchased will be sufficient
to meet its regulatory requirements.
It will be easier for this to be the case
because this policy is a compilation of
individual Dwelling policies. There
fore, because the coverage limits
available under the Condominium
Master Policy are $185,000 times the
number of units, the association may
purchase up to that amount. The sim
plest way for a lender to be certain that
the coverage on such a policy is suffi
cient is for the lender to divide the
coverage purchased by the number of
units in the building. If the resulting
amount is at least $70,000, and the
v alue of the average unit is at least that
amount, then the total coverage pur
chased under that policy is probably
sufficient to meet the lender's basic
requirements, on the basis of the statu
tory cap of $70,000.*
I F SU FF IC IE N T AM OUNTS O F
FLO O D INSURANCE ARE
P U RC H A SED B Y TH E
ASSOCIATION UNDER OPTION
(C ), THIS M IG H T B E T H E B E S T
OPTION FO R A LEN D ER TO
CONSIDER, A S IT WILL B E TH E

ONE M O ST U K E L Y TO
F U L F IL L T H E MANDATORY
FLO O D INSURANCE
P U R C H A SE REQUIREM ENTS.
SIN CE IT IS U K E L Y THAT IT
WILL B E HAN D LED
ADM INISTRATIVELY B Y T H E
ASSOCIATION IN TH E SAM E
MANNER AS IN TH E CASE O F
THEIR OTHER FO RM S O F
PR O PER TY INSURANCE, IT
SHOULD A SSU RE A HIG HER
U K E U H O O D TH AT TH E
ASSOCIATION WILL R EN EW
THEPO UCY.

* In this connection it should be noted
that $70,000 is the maximum amount
of insurance required for single-fam
ily residential dwellings by Section
1306(b)(6) of the 1968 Act (Section
1413(b)(6) of Title 42 USC), which
on October 12, 1977, modified the
language of Section 102 of the origi
nal 1973 Act, which defined the pur
chase requirement as being "at least
equal to the outstanding principal bal
ance of the loan or the maximum limit
of coverage made available with re
spect to this particular type of prop
erty under the [1968] Act, whichever
is less."

Federal Emergency Management Agency
NATIONAL FLOOD INSURANCE PROGRAM APPLICATION TO
CONDOMINIUMS

OWNERSHIP

IN SU RA BLE
IN TEREST

Unit
PROPERTY/LOCATION Unit
Within Unit
Owner Association Owner Association

FLOOD
COVERA GE
A V A ILA BLE
Unit
Owner Association

air space

wall, floor and
ceiling coverings,
improvements and
betterments

common structural
elements

contents

Common Structural
elements of all
buildings owned
by Association

Common Areas
(non-structural)

Common contents

Outside Unit

NOTES:
(1) Except when contents of unit are commonly owned.
(2) The unit owner owns a proportional share of the total common elements.
(3) Ownership divided proportionally amongst all unit owners.
(4) NFIP covers only buildings and their contents.
(5) The Dwelling Policy covers both the unit owner's insurable interest in structural elements of
the unit as well as those for all the common structural elements of the NFIP insured buildings.
This policy may be purchased by either the unit owner or the association. Associations may, in
certain cases, also purchase a Condominium Master Policy, which gives similar coverage of both
units and common elements.
(6) Only the association may purchase a General Property Policy. It covers all common structural
elements of the building, including those within a unit, to the extent that adequate amounts of
coverage have been purchased. This would include the improvements and betterments within the
units.
(7) Except when the association owns the contents in a unit as common property. For more
detailed information on the condominium concept, see the four examples and descriptive
exhibits which follow:

Mandatory Purchase of Flood Insurance Guidelines

Example 1

FLOOD INSURANCE COVERAGE/COSTS
FOR
CONDOMINIUMS INMULTI-STORY BUILDINGS

CURRENT INDIVIDUAL DWELLING POLICIES
VERSUS
NEW CONDOMINIUM MASTER POLICY
(Regular Program, Pre-FIRM Construction, Zone A)

• AMT. OF COVERAGE/UNIT
• NO. OF UNITS
• AMT. OF COVERAGE/BLDG.

CURRENT
DWELLING POLICY
(Actual)
$70,000

$70,000

NEW CONDOMINIUM
MASTER POLICY

(Estimates)

$70,000

100

$7 MILLION

• RATES
D.P.—Single Family
C.M .P.—-Other Residential/
Single Family

$7 MILLION

$.55/. 17

S.55/.17

400 x S .55 = S220
300 x $ .17 =
51

1.150 x $ .55 = S 633
68.850 x S .17 = $11,705

$271

$12,338

• PREMIUM-UNIT/BLDG.
• EXPENSE CONSTANT

S45/UNIT

S 45/
BLDG.

• TOTAL PREMIUM/UNIT

S 316

512.383

• NO. OF UNITS

X 100
S 31.600

• TOTAL PREMIUM/BLDG.
• DEDUCTIBLE-UNIT/BLDG.

S500/UNIT x 100 = $ 50.000

• NET SAVINGS/BENEFIT TO THE ASSOCIATION

• ANNUAL PREMIUM
• LOWER DEDUCTIBLE /
INCREASED COVERAGE
AT NO ADDITIONAL COST

N/A
512.383
$

500

$19,217

S 49.500

• BOARD FIDUCIARY RESPON
SIBILITY MET
• NET BENEFIT TO THE PRODUCER/WYO COMPANY

ONE APPLICATION FORM
ONE POLICY
ONE DECLARATIONS PAGE
ONE SET OF NOTICES

CONDO 13

January 1989

Federal Emergency Management Agency

Example 2

FLOOD INSURANCE COVERAGE/COSTS
FOR
CONDOMINIUMS IN MULTI-STORY BUILDINGS
CURRENT INDIVIDUAL DWELLING POLICIES
VERSUS
NEW CONDOMINIUM MASTER POUCY
(Regular Program, Post-FIRAl Construction,
Zones ALSO, Lowest Floor At BFE)
CURRENT
DWELLING POLICY

(Actual)

• AMT. OF COVERAGE/UNIT
• NO. OF UNITS
• AMT. OF COVERAGE/BLDG.

NEW CONDOMINIUM
MASTER POLICY

(Estimates)

S70,000

$70,000

100
$7 MILLION

• RATES
D.P.—Single Family
C.M.P.—Other Residential/
Single Family

S7 MILLION

$7 MILLION

$.30/.06

$.35/.06

400 x $ .30 = $120
300 x $ .06 =
18

1.150 x $ .35 = $ 403
68,850 x S .06 = $ 4,131

$138

• PREMIUM-UNIT/BLDG.

$ 4,534

• EXPENSE CONSTANT

$45/UNIT

$ 45/
BLDG.

• TOTAL PREMIUM/UNIT

$ 183

S 4,579

• NO. OF UNITS

X 100
$ 18.300

• TOTAL PREMIUM/BLDG.
• DEDUCTIBLE—UNIT/BLDG.

S500/UNIT x 100 = S 50,000

ANNUAL PREMIUM

• NET SAVINGS/BENEFIT TO THE ASSOCIATION

LOWER DEDUCTIBLE /
INCREASED COVERAGE
AT NO ADDITIONAL COST

N/A
$ 4,579
S

500

$ 13.721

S 49.500

• BOARD FIDUCIARY RESPON
SIBILITY MET
• NET BENEFIT TO THE PRODUCER/WYO COMPANY

CONDO 14

ONE APPLICATION FORM
ONE POLICY
ONE DECLARATIONS PAGE
ONE SET OF NOTICES

January 1989

Mandatory Purchase of Flood Insurance Guidelines

Example 3

FLOODINSURANCE COVERAGE/COSTS
FOR
CONDOMINIUMSINMULTI STORY BUILDINGS

CURRENT INDIVIDUAL DWELLING POLICIES
VERSUS
NEW CONDOMINIUM MASTER POLICY
(Regular Program, Post-FIRM Construction,
Zone AO-AH. N o Basement, Without Certification)
CURRENT
DWELLING POLICY

(Actual)

• AMT. OF COVERAGE/UNIT
• NO. OF UNITS
• AMT. OF COVERAGE/BLDG.

$70,000

NEW CONDOMINIUM
MASTER POLICY
(Estimates}
$70,000

100
$7 MILLION

S7 MILLION

$7 MILLION

$.65/.17

$.55/. 17

• RATES
D.P.—Single Family
C.M .P.—Other Residential/
Single Family

400 X $ .55 = $220
300 x S .17 =
51

1,150 x $ .65 = S 748
68,850 x $ .17 = SI 1,705

$271

• PREMIUM-UNIT/BLDG.

$12,453

• EXPENSE CONSTANT

S45/UNIT

S 45/
BLDG.

• TOTAL PREMIUM/UNIT

$ 316

$12,498

• NO. OF UNITS

X 100

• TOTAL PREMIUM/BLDG.
• DEDUCTIBLE-UNIT/BLDG.

S 31,600
S500/UNIT X 100 = S 50.000

• NET SAVINGS/BENEF1T TO THE ASSOCIATION

• ANNUAL PREMIUM
• LOWER DEDUCTIBLE/
INCREASED COVERAGE
AT NO ADDITIONAL COST

N/A
$12,498
$

500

S19.102

S49.500

• BOARD FIDUCIARY RESPON
SIBILITY MET
ONE APPLICATION FORM
ONE POLICY
ONE DECLARATIONS PAGE
ONE SET OF NOTICES

• NET BENEFIT TO THE PRODUCER/WYO COMPANY

January 1989

CONDO 15

Federal Emergency Management Agency

Example 4

FLOODINSURANCE COVERAGE/COSTS
FOR
CONDOMINIUMS INMULTI-STORY BUILDINGS

CURRENT INDIVIDUAL DWELLING POLICIES
VERSUS
NEW CONDOMINIUM MASTER POLICY
(Regular Program, Posi-FIRM Construction,
Zones AO-AH. No Basement, With Certification)
CURRENT
DWELLING POLICY

(Actual)

• AMT. OF COVERAGE/UNIT
• NO. OF UNITS
• AMT. OF COVERAGE/BLDG.

$70,000

NEW CONDOMINIUM
MASTER POLICY

(Estimates)

$70,000

S70.000

S7 MILLION

100
$7 MILLION

$.17/.06

• RATES
D.P.—Single Family
C.M.P.—Other Residential/
Single Family

400 x $ .17 = $ 68
300 x $ .06 =
18

1.150 x S .17 = S
195
68.850 x S .06 = S 4.131

S 86

• PREMIUM-UNIT/BLDG.

S 4.326

• EXPENSE CONSTANT

S45/UNIT

$ 45/
BLDG.

• TOTAL PREMIUM/UNIT

$ 131

$ 4.371

• NO. OF UNITS

X 100
S 13.100

• TOTAL PREMIUM/BLDG.
• DEDUCTIBLE—UNIT/BLDG.

S500/UN1T x 100 = $ 50.000

• NET SAVINGS/BENEFIT TO THE ASSOCIATION

• ANNUAL PREMIUM
• LOWER DEDUCTIBLE /
INCREASED COVERAGE
AT NO ADDITIONAL COST

N/A
S 4.371
S

500

S8.729

$49,500

• BOARD FIDUCIARY RESPON
SIBILITY MET
• NET BENEFIT TO THE PRODUCER/WYO COMPANY

CONDO 16

ONE APPLICATION FORM
ONE POLICY
ONE DECLARATIONS PAGE
ONE SET OF NOTICES

January 1989

Mandatory Purchase of Flood Insurance Guidelines

National Flood Insurance Program
Condominium Master Policy
Major Benefits
•

S ignificant co st savings to the association

• In creased co v erag e at no co st
•

A ssists unit ow ners with m ortgage
insurance requirem ents

•

A ssists in m eeting Fed eral m ortgage
assistance requirem ents

•

A llow s A ssociation to treat sam e as other
property insurance

• P rovid es greater p rotection against liability
issues to association and board m em bers
•

A llow s association full central con trol over
co v erag e, renew als, claim s and repairs

•

Sim ple to process

Federal Emergency Management Agency

Federal Insurance Administration
National Flood Insurance Program
Condominium Master Policy
Individual Features
Policy in effect:

A s o f Jan u ary 1 , 1 9 8 9

Insured:

. . ^
A ssociation only

Buildings Eligible:

3 o r m ore floors / 5 o r m ore units

Property Covered:

A ll com m on structural building elem ents
•

Internal unit elem ents
- W all, floor, ceiling co verin gs
- Im provem ents and betterm ents

Assessment Coverage:

Y es*

Coverage Limits:

$ 1 8 5 ,0 0 0 x no. o f units in bldg, o r actual
cash value o f bldg, (w h ich ever is less)

Coverage Type:

A ctu al cash value

Deductible:

$ 5 0 0 per building (n ot unit)

Expense Constant:

$ 4 5 per building (n ot unit)

Rates:

L o w e r than with other N F IP policies
U sed differently - results in low er
prem ium

Premium:

Significantly low er - up to 6 0 % plus

Minimum Coverage Requirement? •

Insurance to value strongly urged

So long as the follow ing assessm ent criteria are met.
1. O ther bldgs, o f association covered by G eneral Prop, p o licy.
2 . A ssociation flood co v erag e m ust be N F IP co v erag e.
3. C overag e am ount m ust be A C V or m axim um available, w h ich ever is less.

Mandatory Purchase of Flood Insurance Guidelines
INDEX
Actual Cash Value Coverage................................................................................ 21, 33
Additions and Betterments....................................................................................31
Airspace................................................................................................................. 31
Amount of Flood Insurance Available................................................................. 12
Assessments for Condominium Unit Owners..................................................... 32, 34
Base Flood Elevation.............................................................................................6
Basements, Limitations on Coverage..................................................................25
Buildings Built Over Water..................................................................................25
Buildings in the Course of Construction............................................................. 23
Buildings Built in Violation of Local Ordinances............................................. 24
Certificate of Redetermination.............................................................................. 20, 20a
Coastal Barriers Resources Act (COBRA).......................................................... 15, 24
Common Interests of Condominium Unit Owners.............................................31
Communities, Number Participating in NFIP..................................................... 6
Comptroller of the Currency..................................................................................15, 25
Condominiums....................................................................................................... 30
Condominium Associations..................................................................................30
Condominium Master Policy................................................................................34
Condominium Unit Owners.................................................................................. 30
Contents Coverage, Requirement For..................................................................9
Conventional Loans............................................................................................... 17
Costs Incurred by Lenders.................................................................................... 27
Deductible under Insurance Policy...................................................................... 22
Department of the Interior.................................................................................... 16
Department of Housing and Urban Development (HUD).................................27
Depreciation........................................................................................................... 21
Detached Garage of Residence.............................................................................21
Determination of Lenders......................................................................................18, 19
Development Loan................................................................................................. 22
Difference in Conditions, Policies of Insurance................................................. 32
Disaster Relief Act of 1974................................................................................... 12

Federal Emergency Management Agency
Disaster Assistance...............................................................................................12, 24
Eagleton Amendment...........................................................................................17
Elevated Building................................................................................................. 8, 11, 17
Elevation Certificate.............................................................................................23
Emergency Program under the NFIP.................................................................. 6
Escrow...................................................................................................................27
Federal Agencies................................................................................................... 10, 11
Federal Deposit Insurance Corporation..............................................................15, 25
Federal Financial Institutions Examination Council.........................................18
FFTEC Examination Procedures and Examiner Checklist................................ 28
Federal Home Loan Bank Board........................................................................: 15, 25
Federal Home Loan Mortgage Association........................................................12
Federal Housing Administration..........................................................................12
Federal Instrumentalities...................................................................................... 14
Federal Insurance Administrator.........................................................................5
Federal National Mortgage Association Requirements.................................... 13
Federal Reserve Board......................................................................................... 15, 25
FEMA Form 8 1 -2 ................................................................................................. 18, 18a
FEMA Form 81-3 ................................................................................................. 20, 20a
Flood Hazard Boundary Maps (FHBM).............................................................6
Flood Insurance Rate Map (FIR M ).................................................................... 6
Floodway...............................................................................................................8
Financial Assistance, Federal Financial Assistance..........................................10, 11, 14
Forced Placement..................................................................................................27
Garages, Detached................................................................................................ 21
Gazebos..................................................................................................................23
General Property Policy....................................................................................... 35
Good Faith Standard by Which
Lenders Are Judged as to Determinations..........................................................19
Guidelines, Mandatory Flood Insurance Purchase............................................18
Hazard Insurance, Term Used in Mortgages......................................................27
High Rise Buildings.............................................................................................. 31

Mandatory Purchase of Flood Insurance Guidelines
Home Equity Loans.............................................................................................. 15, 27
How Much Flood Insurance Must Be Purchased.............................................. 13,15, 21
How Long Must Insurance Coverage Be Kept...................................................15
HUD Uniform Residential Appraisal Form........................................................20
Improved Real Estate, Improved Real Property................................................ 20, 21
Improvements and Betterments...........................................................................31
Ineligibility of Property for Rood Insurance......................................................23, 24, 25
Insurable Structures..............................................................................................18
Insurance To Value...............................................................................................34
Lenders's Remedies to Achieve
Compliance After Initiation of Loan.................................................................. 26
Letter of Map Amendment (LOMA).................................................................. 7, 11, 16
Letter of Map Revision (LOMR)........................................................................ 7, 8, 11, 16
Local Floodplain Management Ordinances....................................................... 5
Loss Ratio Outside Special Flood Hazard Areas............................................... 10
Maximum Amount of Flood Insurance Coverage
Required by Law....................................................................................................13, 15, 21
Maximum Amount of Flood
Insurance Coverage Available under N FIP........................................................12,15,21,36
Mobile Homes and Manufactured Homes......................................................... 9
National Credit Union Administration...............................................................15
Non Participating Communides.......................................................................... 14
Notification under Coastal Barrier Resources A c t........................................... 16
Notification of Borrowers of Flood Hazards.....................................................17
Notification of Borrowers, Reasonable Time F o r............................................ 18
Number of Communities in NFIP.......................................................................6
Office of Thrift Supervision............................................................................... 15
One Hundred Year Flood (100 Year Flood).......................................................7
Participation by Communities in NFIP.............................................................. 6, 9
Personal Property................................................................................................. 9
Personal Property, Requirement of Coverage For
Purchasers of Improved Real Estate...................................................................9
Personalty, such as Tool Sheds or Shacks.........................................................22
Pole B am s............................................................................................................. 23

Federal Emergency Management Agency
Preferred Risk Policy........................................................................................... 10
Principal Property,
Principal Residence of an Insured Homeowner.................................................21
Private Policy of Flood Insurance,
Acceptability by Lenders.....................................................................................25
Probation, Imposed on Communities
For Non Compliance............................................................................................ 6
Purchase of Mortgages Loans............................................................................. 25
Purchase of Mortgage Loans by Federal Agencies........................................... 12
Regular Program of the
National Flood Insurance Program.....................................................................6, 23
Reliance by Lenders on Outside
Advice in Making Determinations.......................................................................19
Replacement Cost Coverage
in Connection with Loss Payments.....................................................................21, 33
Roads and Bridges,
Federal Financial Assistance............................................................................... 14
Row Houses........................................................................................................... 31
Second Mortgages..................................................................................................15
Secondary Residences of Insureds.......................................................................21
Secondary Mortgage Market............................................................................... 25
Section 1364 of 1968 Act
Concerning Notice to Borrowers......................................................................... 18
Section 1316 of 1968 Act
Concerning Non Compliant Structures................................................................24
Small Business Administration, Loans B y ......................................................... 13
Special Flood Hazard Area,
Area of Special Flood Hazard.............................................................................. 6, 7
Standards by Which Lenders are
Judged in Making Determinations....................................................................... 18
Status of Studies and Maps...................................................................................6
Storage Tanks........................................................................................................23
Structures, Walled and Roofed............................................................................ 18
Subsequent Revision of Flood Maps,
Impact on Prior Loans........................................................................................... 19
Subsequent Revision of Flood Maps,
Impact on Subsequent Loans................................................................................19

Mandatory Purchase of Flood Insurance Guidelines
Suspension of Communities
for Non Compliance Problems........................................................................... 6
Tool Sheds or Shacks........................................................................................... 22
Town Houses........................................................................................................ 31
Undivided Interest of Condominium Unit Owners...........................................30,31
Universal Residential Appraisal Report Form...................................................20
Value of Land....................................................................................................... 20
Veterans Administration......................................................................................11
Walled and Roofed Structures............................................................................ 18
Write Your Own Program....................................................................................25
Zones, Flood Zones for Mapping and RatingPurposes.....................................7

Harold T. Duryee
Federal Insurance Administrator

July 13,1989
Date

Billing Code 6718-01

Full text of Federal Reserve Bank of New York Circulars : Flood Insurance Purchase Requirements

FRASER