Author: Gina Ellis The five federal regulatory agencies announced the approval of a joint final rule modifying regulations that apply to loans secured by properties located in special flood-hazard areas. This final rule implements provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), which requires the escrow of flood insurance premiums and fees for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after January 1, 2016. The final rule also clarifies the types of detached structures that are exempt from flood insurance requirements.
HFIAA provided a new exemption for the mandatory flood insurance purchase requirement for a structure that is part of residential property but detached from the primary residential structure and not function as a residence. This rule clarifies that a structure is detached if it is not joined by any structural connection to the residential structure. In other words, a structure is “detached” if it stands alone.
Further clarification is also provided for the phrase, “a structure that is part of a residential property” to be a structure used primarily for personal, family or household purposes and not used primarily for agricultural, commercial, industrial or other business purposes.
The final rule requires lenders to consider the actual and intended use of a structure and make a good faith determination as to whether the structure “serves as a residence”. While there is no duty to monitor the status of a detached structure following the bank’s initial determination, the status of a detached structure must be re-examined upon a qualifying triggering event such as making, increasing, renewing or extending a loan.
Also implemented are other provisions of the Biggert-Waters Flood Insurance Reform Act of 2012, which states banks have the authority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date the coverage lapses or becomes insufficient.
This is only a brief discussion of the final rule. Further analysis of the exemptions for residential detached structures, mandatory escrow of flood insurance and force-placed fees will be required.