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We acknowledge that the borrower must sign a flood notice at closing. My question is: If a property is not in a flood plain area do we have to provide the notice to the borrower at least a reasonable (10 days) prior to closing?
No. The Notice of Special Flood Hazards is required to be given when a bank makes, increases, extends, or renews a loan secured by a building or a mobile home located or to be located in a special flood hazard area. If the property securing the loan isn’t in a flood zone you do not have to give the flood notice.
You also need to review your process of having the borrower sign the flood notice at closing – it makes it appear it isn’t given in a reasonable time to allow the borrower to comply with NFIP requirements/obtaining flood insurance. Give the notice and have it signed earlier in the process – 10 days prior to closing is generally deemed a reaonable time but there may be instances when you may only have 7 days. Either way you need to give it/have it signed a reasonable time before closing to allow the customer to get flood insurance. There is an excerpt from the flood reg below:
§ 339.9 Notice of special flood hazards and availability of federal disaster relief assistance.
(a) Notice requirement. When a bank makes, increases, extends, or renews a loan secured by a building or a mobile home located or to be located in a special flood hazard area, the bank shall mail or deliver a written notice to the borrower and to the servicer in all cases whether or not flood insurance is available under the Act for the collateral securing the loan.
(c) Timing of notice. The bank shall provide the notice required by paragraph (a) of this section to the borrower within a reasonable time before the completion of the transaction, and to the servicer as promptly as practicable after the bank provides notice to the borrower and in any event no later than the time the bank provides other similar notices to the servicer concerning hazard insurance and taxes. Notice to the servicer may be made electronically or may take the form of a copy of the notice to the borrower.
(d) Record of receipt. The bank shall retain a record of the receipt of the notices by the borrower and the servicer for the period of time the bank owns the loan.
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