ABA RCC – Flood Insurance

The American Bankers Association is underway in New Orleans this week.  With more than 1,700 attendees and 82 sessions offered there is a wealth of knowledge to be shared.  One notable session from Sunday was, “Flood Insurance:  Where Are We Now and Where Are We Going?”
The “Flood Insurance:  Where Are We Now and Where Are We Going?” session gave a good overview of the recent and pending changes to the flood insurance requirements resulting from the Biggert-Waters Flood Insurance Reform Act and the Homeowners Flood Insurance Affordability Act.  One of the most notable points made pertained to the mandatory purchase exemption for detached structures found in the HFIAA.  The speakers pointed out that the statute includes a provision that exemptions certain detached structures from the flood insurance requirements.  It states, “…flood insurance shall not be required, in the case of any residential property, for any structure that is a part of such property that is detached from the primary residential structure and does not serve as a residence.”  Note the emphasis placed on “shall”.  The speakers’ point was that the “shall seems to indicate that a lender may not be able require flood insurance on a detached structure even for safety and soundness purposes.   However, changes are also required to be made the RESPA Settlement Cost Booklet disclosing that lenders may require flood insurance on detached structures in order to secure collateral.    The end conclusion was that it is unclear if the “shall” will preclude lenders from requiring flood insurance on detached properties that qualify for this exemption to the flood insurance rules – further clarification is needed.
Reported by Robin Cooper
Editor Comment: It is highly unlikely that an interpretation that prohibits creditors from requiring insurance on collateral will stand.