11.1 Flood Determinations, Notices and Required Coverage

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1. Statutory Scope & The "MIRE" Triggering Events

Flood insurance regulations apply to any loan originated, acquired, or serviced by a federally regulated lending institution that is secured by improved real estate or a mobile home.

A. The "MIRE" Events

A regulated lender is prohibited from engaging in any of the four statutory "MIRE" events unless flood compliance requirements are satisfied at the time of the event:

1. Making a loan;
2. Increasing the credit line or principal balance of an existing loan;
3. Renewing an existing loan obligation; or
4. Extending the maturity date of an existing loan.

Operational Scope: The MIRE rule applies across all loan categories—consumer residential mortgages, commercial real estate loans, construction loans, agricultural credits, and small business facilities—whenever improved real estate collateral is pledged.

B. Improved Real Estate & Mobile Home Definitions

• Improved Real Estate: Real property containing a building or structure with two or more outside rigid walls and a fully secured roof, affixed to a permanent site. It includes commercial and residential buildings, agricultural barns, and buildings in the course of construction.
• Mobile Homes: A structure built on a permanent chassis, transported to its site in one or more sections, and affixed to a permanent foundation (including plumbing, heating, air conditioning, and electrical systems). Travel trailers and campers are excluded.
• Unimproved Land: Loans secured solely by unimproved vacant land are exempt from flood requirements. However, if a borrower intends to construct a building on the parcel during the loan term, flood requirements attach as soon as vertical construction commences (pouring foundation walls and erecting rigid framing).

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2. Standard Flood Hazard Determination Form (SFHDF) & Notice Rules

A. Standard Flood Hazard Determination Form (FEMA Form 086-0-32)

For every MIRE event, the lender must complete a Standard Flood Hazard Determination Form (SFHDF) to verify whether the improved collateral is located in a Special Flood Hazard Area (SFHA).

• SFHA Identification: Areas subject to inundation by a 100-year flood (a 1% annual chance of flooding). SFHAs are designated on FEMA Flood Insurance Rate Maps (FIRMs) as Zones starting with A or V:
  • A Zones (A, AE, A1-A30, AH, AO, AR, A99): Inland and riverine flood hazard zones.
  • V Zones (V, VE, V1-V30, VO): Coastal high-hazard areas subject to high-velocity wave action.
  • Non-SFHA Moderate-to-Low Risk Zones (B, C, X): Flood insurance is not federally mandated, but may be purchased voluntarily.
• Community Participation: The lender must verify whether the community where the property is located participates in the National Flood Insurance Program (NFIP). If an SFHA property is in a non-participating community, the federal mandatory-purchase prohibition does not apply where NFIP insurance is unavailable. A lender may lend, subject to its charter-specific restrictions and prudent underwriting, and should consider available private coverage. The special-flood-hazard notice remains required.

B. Reliance on a Prior Determination

A lender may rely on a prior flood determination form instead of ordering a new SFHDF only if all three conditions are met:

1. The prior determination was recorded on the official FEMA SFHDF;
2. The prior determination was made not more than 7 years before the date of the new transaction; and
3. FEMA has not revised or updated the flood insurance map for that community since the date of the prior determination, and no new flood hazard has been identified.

Strict Lender Prerogative Rule: A lender may only rely on a prior determination that was conducted for its own institution; a lender cannot rely on a prior determination performed by a different third-party bank, except in secondary market loan participations or syndications where the original lead lender performed the determination.

C. Notice of Special Flood Hazards (§22.9 / §339.9)

Whenever improved collateral is located in an SFHA in a participating community, the lender must provide a written Notice of Special Flood Hazards to the borrower and loan servicer.

• Timing Standard: The notice must be delivered within a reasonable time prior to completion of the transaction. Regulatory guidance establishes that delivering the notice at least 10 calendar days before loan closing satisfies the reasonable time standard.
• Mandatory Content: The notice must state: (1) that the property is located in an SFHA; (2) that flood insurance is required under federal law; (3) whether federal disaster relief assistance will be available in the event of flood damage; and (4) information about the availability of private flood insurance as well as NFIP policies.
• Borrower Acknowledgment: The lender must obtain a written acknowledgment of receipt signed by the borrower, or another permitted record of receipt, retained for the loan’s life. A particular signature format is not universally prescribed.

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3. Amount of Required Flood Insurance Coverage

Federal regulations mandate that the dollar amount of flood insurance in place must be at least equal to the statutory minimum coverage formula.

A. The Minimum Coverage Formula

Flood insurance coverage must equal the LESSER OF the following three amounts:

1. The outstanding principal balance of the loan (assess lines of credit and increases under the applicable guidance);
2. The maximum insurable value of the insurable improvements; or
3. The maximum statutory limit of coverage available under the NFIP for the particular property type.

B. Insurable Value Mechanics

Insurable value reflects the Replacement Cost Value (RCV) or Actual Cash Value (ACV) of the physical improvements, strictly excluding the value of the land.

• Compliance Trap: Never base flood insurance calculations on the total real estate appraisal value or purchase price without carving out land value. Land cannot flood in an insurable sense. Subtracting land from an appraisal leaves an allocated improvement value, not necessarily a supportable insurance replacement-cost value; obtain a defensible insurable-value calculation.

C. NFIP Statutory Coverage Ceilings