In one sentence
A report identifying whether a property sits in a designated special flood hazard area, which decides whether flood insurance is federally required.
The longer version
The determination is made against current flood maps and recorded on a standard form. If the property is in a special flood hazard area and the lender is federally regulated, flood insurance is mandatory and the loan may not fund without it.
Many determinations are ordered with life-of-loan monitoring, so the servicer is notified if the maps are redrawn and the property is brought into a hazard area later. That notification then requires a force placement process if the borrower does not obtain coverage, which makes it a servicing obligation rather than a closing one.
Common questions
- Who requires flood insurance?
- Federal law requires it for loans made by federally regulated lenders on properties in special flood hazard areas. It is not a matter of lender preference for those institutions.
- What is life-of-loan monitoring?
- An ongoing service that alerts the lender or servicer if flood map revisions place the property into a hazard area after closing, triggering a new insurance requirement.
- What happens if a borrower lets flood coverage lapse?
- The servicer must follow a notice and force placement process. Failing to do so is a compliance finding independent of whether any flood loss occurred.
Keep reading
- The commercial loan closing checklistInsurance conditions before funding.
- The Loan Servicing Handoff: From Closing to BoardedMonitoring obligations after closing.
- NCUA Exam Preparation for Commercial LendingFlood compliance under exam.
- Due diligence softwareThe request list, the owners and the dates in one place.