The institution is closing a construction loan which is collateralize by a property consisting of multiple lots. Portions of 2 of the lots are located in a flood zone. All of the property is vacant or includes structures that are being demolished with the proceeds of the first advance of the loan. Our Credit team has agreed to waive the flood insurance requirement until construction commences due to the property type (vacant), however, does the Borrower still have to sign off on the Flood notice? We don’t believe it would make sense for him to sign it since the property is not currently insured and we do not want to send this out unnecessarily. Is the Borrower required to sign the notice under the regulation regardless of if there is nothing to insure?

" includes structures that are being demolished with the proceeds of the first advance of the loan."

If structures are present at the time the loan closes, then flood insurance is required on the structures that are located in the SFHA until they no longer exist.

There are no exceptions, and waiving flood insurance requirements are the quickest way to CMPs for your organization.

"Our Credit team has agreed to waive the flood insurance requirement "

I wish I could waive federal laws. Agree with Randy, need the notice and the insurance if there will be structures securing the loan at closing. Either get the insurance or knock them down before closing.

You are also going to need to deal with flood insurance for whatever you're constructing if it will secure the loan, so even if you knock them down (or break the law and waive flood insurance), you'll still need the notice, and you'll need to get insurance on the structures you're constructing once vertical construction starts (assuming they secure the loan).

Yes, and as far as the new construction, if the policies for the new structures are not purchased at or before loan closing, the 30-day wait period will apply to those new policies and any construction, other than the slab, will have to be halted.

"Our Credit team has agreed to waive the flood insurance requirement "

Agree with Inherent Risk! Once an EVP. Chief Credit officer waived flood insurance. I reminded him that NO-ONE in the bank was allowed to intentionally create a violation of federal law.

I'll jump on the bandwagon with Randy, IR & Rocky.

"Our Credit team has agreed to waive the flood insurance requirement "

No one on the bank's behalf, not even the board of directors, has the authority to waive flood insurance requirements.

I have been there in this situation. A lender did not want to require the flood insurance requirement, which resulted in a CMP later on.

Tell your Credit Team that they have created a "One D Ten T" error! It's usually an IT exception, but fits their decision.

It's also written out as 1D10T