Is it a requirement to wait 10 days prior to closing before disbursing a loan, if property is not in the flood zone - I believe there is not a time line if it is not in the flood zone, as long as the flood determination was pulled - but just need some assurance that this is correct

There isn't even a hard and fast 10 day rule if it is in a flood zone.

The rules just say the notice must be given a reasonable time before closing. There used to be guidance that defined reasonable time as 10 days. This guidance went away awhile back even though you will still run into auditors and examiners that try to enforce it,

The thing to keep in mind is did you give the borrower enough time to shop. If they have adequate insurance in place before the loan closes then I think you have proven they had time to shop. As I noted you may get some push back from auditors and examiners but as long as you aren't intentionally delaying the notification (e.g. giving it at closing) you should be fine.

This is all based on the assumption the determination is positive, i.e property is in the flood zone. As Randy noted there is no requirement when the property is not in the flood zone.

While I don't disagree that there isn't a hard and fast 10 day rule, the Kansas City Fed did recently say this:

"Moreover, the timely delivery of the SFHA notice requires some additional attention. Given that Regulation H does not specifically define what constitutes a reasonable time to provide the SFHA notice prior to loan origination, the rule of thumb to ensure compliance is to complete the flood determination as soon as the bank knows the location of the property securing the loan and to immediately provide the SFHA notice if determined to be located in a special flood hazard area. In most cases, it is prudent to follow the flood Q&A that addresses the timing of the notice by providing the notice at least 10 days prior to loan origination. In instances where the 10-day timeframe is not met, banks must provide sufficient documentation to demonstrate that it provided the SFHA notice as soon as reasonably practicable."

Thank you for all advice given

If you are regulated by the FED, the exam manual still states "The Agencies generally regard 10 days as a
“reasonable” time interval" in the "Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance" section.

It does, however, also state the following immediately prior to the 10 day statement.
"Delivery of the notice of special flood hazards
must take place within a “reasonable time” before
the completion of the transaction. What constitutes
“reasonable” notice will necessarily vary according
to the circumstances of particular transactions. An
institution should bear in mind, however, that a
borrower should receive notice timely enough to
ensure that
• the borrower has the opportunity to become
aware of the borrower’s responsibilities under
the NFIP; and
• where applicable, the borrower can purchase
flood insurance before completion of the loan
transaction."

Given we are a FRB-regulated institution, I always try to enforce the 10 day waiting period, especially for purchase transactions.

OK - look, this is all really based on reasonableness. So it should be based on your policies. If your policies don't look like this, then you have may have issues.

1, You get an application that identifies the collateral property.

2. You order your FHD and get it back and it shows the property in a SFHA.

3. The property is in a flood zone so when you order your appraisal, you make sure that the appraiser does not exclude the RCV and ACV from the appraisal so you know what you need from an insurance perspective .

4. You send the borrower the Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance a day or two after you get the flood determination back

5, The applicant provides you proof of flood insurance before the loan closes.

6. It does not matter when you close - you have complied with the requirements.

Regulation Z requires 7 days between the LE and closing. Flood insurance requirements does not impede on those wait times if you have your act together. If not Reg Z, then what other wait times would you worry about??

The problems arise when the FHD is not pulled until just before closing. Any lender doing that is at the mercy of the regulators and likely the lender has no idea as to how much insurance is actually required as the appraiser likely failed to provide the necessary information in the appraisal to determine the amount of insurance required.

Great explanation, Randy. Said another way, if the flood notice is not provided within 10 days before closing, you need to ensure your loan has evidence that you provided the notice as soon as reasonably practical (i.e. pulling the flood cert timely after getting the property location and then timely delivering the notice customer).

So, either 1) deliver the notice 10 days before closing or 2) show the paper trail that you provided the notices as soon as "reasonably practical."

In some shops, the 10-days won't ever really need considered due to the processes that comply with "reasonably practical." That said, other shops who delay flood procedures for whatever reason need to be aware of the 10-day rule if their delay doesn't meet the definition of "reasonably practical."

We have had several clients regulated by the FRB that won't budge on the 10 days. At our live conferences last year, we had. regulatory panel (FDIC, OCC, FRB and NCUA) in 3 different cities. This topic was brought up at every conference and in all 3 cases, the FRB representative (different examiners) were firm on the 10 days "requirement." The other regulators were not.

It's hard to deviate from not enforcing the 10 day rule when it's spelled out pretty plainly in the exam procedures...…...

But it is not, if they would actually use a "reasonable" and "generally regard" standard and a lender actually operates in a timely manner. If I order the FHD on the day of application, get the FHD the next day, I can close in seven business days under Regulation Z, if I gave them the LE on the day of application. If I got the Notice to the borrower on day 3 - I guess we could all sit around and twiddle our thumbs for a couple of days waiting to close even though the borrower has plopped a flood policy in my lap. What is so unreasonable about that? In reality, loans usually don't close that fast and if you are not delivering the notice timely when you have time to do so - then that is when they are going to bite you.

Interagency Exam Procedures

Delivery of the notice of special flood hazards must take place within a “reasonable time” before the completion of the transaction. What constitutes “reasonable” notice will necessarily vary according to the circumstances of particular transactions. An institution should bear in mind, however, that a borrower should receive notice timely enough to ensure that:

• The borrower has the opportunity to become aware of the borrower’s responsibilities under the NFIP; and
• Where applicable, the borrower can purchase flood insurance before completion of the loan transaction.

The Agencies generally regard ten days as a “reasonable” time interval.

Back to this, the original flood determination had a wrong address, property not in flood zone, the home and the acreage was sold to customer's son. Customer had construction loan and is now putting into permanent financing. Another flood determination was done and was received today - November 1st, not in flood zone. The borrower received the closing disclosure on October 29th. Can we close on this loan today, since the property IS NOT in flood zone?

If a property is not in a flood zone there are no notifications required to be made to the borrower.