July 30, 2015 1:24 pm

Author: Gina Ellis

When the Biggert-Waters Flood Insurance Reform Act of 2012 was enacted on July 6, 2012, Civil money penalties for flood violations increased from $385 per violation to $2,000 with no aggregate limit.

Penalties can be assessed for failure to:

  • Purchase adequate flood insurance
  • Properly force place flood insurance
  • Provide notification on the availability of flood insurance
  • Properly escrow for premiums.

Seeing this, penalties can add up fast if you do not pay special attention to properties located in special flood hazard areas.

Here are 5 simple tips to avoid flood violations and steep civil money penalties:

1. When a flood determination indicates property will be located in a special flood hazard, implement a second review of the flood insurance policy prior to closing the loan to determine if adequate coverage will be obtained for the proper flood zone and that the bank is properly listed as the mortgagee.

2. Implement procedures to provide the special flood hazard notice every time a loan is made, increased, extended, renewed or modified and is secured by improved real property located in a special flood hazard area.

3. Periodically review loans with collateral properties requiring flood insurance to determine that adequate coverage remains in place for the proper flood zone and if not, begin force placement procedures to obtain adequate coverage.

4. Before paying premiums from escrow, review policies to determine if there have been any changes in the amount of coverage made by the borrower and confirm the coverage remains adequate.

5. Provide specific training to applicable personnel at an annual minimum and increase when regulatory changes are involved.