Can you Rely On a Prior Flood Determination?

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Question:

According to the NFIA, a previous flood determination may not be reused when making a new loan. However, if it is not new (i.e., involves increasing, extending, renewing, etc.) the original flood determination can be used if it is >7 years old, etc. Also, for home equity/second mortgage loans where the lender has a first mortgage and can provide evidence that adequate flood insurance is in place, the lender can rely on the original flood determination. The NFIA does not address whether a lender can rely on a previous determination, specifically, for home equity loans where the lender has the first mortgage and the security property is not in a flood zone and no coverage is in place. My question: Can a lender rely on a previous flood determination for home equity loans, where the lender has the first position, and when the security property is not in a flood zone?

Answer:

I would take the position that you can use the previous flood determination in such a situation because it is the functional equivalent of increasing the loan. The result of the home equity loan is to increase the amount that the debtor already owes to you. Since the regulation says that the previous determination may be relied upon when increasing a prior loan, I think this would fit within the spirit of that provision.

Like you, I have not seen any official pronouncement on the issue, however, so there would be some risk to following this course of action without official word from FEMA or your federal regulator.

First published on BankersOnline.com 1/15/01