42 USC 4012a - Flood insurance purchase and compliance requirements and escrow accounts

U.S Code last checked for updates: Oct 16, 2024

§ 4012a.

Flood insurance purchase and compliance requirements and escrow accounts

(a)

Amount and term of coverage

(b)

Requirement for mortgage loans

(1)

Regulated lending institutions

Each Federal entity for lending regulation (after consultation and coordination with the Financial Institutions Examination Council established under the Federal Financial Institutions Examination Council Act of 1974 [12 U.S.C. 3301 et seq.]) shall by regulation direct regulated lending institutions—

(A)

not to make, increase, extend, or renew any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Administrator as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968 [42 U.S.C. 4001 et seq.], unless the building or mobile home and any personal property securing such loan is covered for the term of the loan by flood insurance in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available under the Act with respect to the particular type of property, whichever is less; and

(B)

to accept private flood insurance as satisfaction of the flood insurance coverage requirement under subparagraph (A) if the coverage provided by such private flood insurance meets the requirements for coverage under such subparagraph.

(2)

Federal agency lenders

(3)

Government-sponsored enterprises for housing

The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation shall implement procedures reasonably designed to ensure that, for any loan that is—

(A)

secured by improved real estate or a mobile home located in an area that has been identified, at the time of the origination of the loan or at any time during the term of the loan, by the Administrator as an area having special flood hazards and in which flood insurance is available under the National Flood Insurance Act of 1968, and

(B)

purchased by such entity,

the building or mobile home and any personal property securing the loan is covered for the term of the loan by flood insurance in the amount provided in paragraph (1)(A). The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation shall accept private flood insurance as satisfaction of the flood insurance coverage requirement under paragraph (1)(A) if the flood insurance coverage provided by such private flood insurance meets the requirements for coverage under such paragraph and any requirements established by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, respectively, relating to the financial solvency, strength, or claims-paying ability of private insurance companies from which the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation will accept private flood insurance.

(4)

Applicability

(A)

Existing coverage

(B)

New coverage

(C)

Continued effect of regulations

(5)

Rule of construction

(6)

Notice

(A)

In general

Each lender shall disclose to a borrower that is subject to this subsection that—

(i)

flood insurance is available from private insurance companies that issue standard flood insurance policies on behalf of the national flood insurance program or directly from the national flood insurance program;

(ii)

flood insurance that provides the same level of coverage as a standard flood insurance policy under the national flood insurance program may be available from a private insurance company that issues policies on behalf of the company; and

(iii)

the borrower is encouraged to compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the national flood insurance program and policies issued on behalf of private insurance companies and to direct inquiries regarding the availability, cost, and comparisons of flood insurance coverage to an insurance agent.

(B)

Rule of construction

(7)

Private flood insurance defined

In this subsection, the term “private flood insurance” means an insurance policy that—

(A)

is issued by an insurance company that is—

(i)

licensed, admitted, or otherwise approved to engage in the business of insurance in the State or jurisdiction in which the insured building is located, by the insurance regulator of that State or jurisdiction; or

(ii)

in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property, is 1

 So in original. The word “is” probably should not appear.

recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction where the property to be insured is located;

(B)

provides flood insurance coverage which is at least as broad as the coverage provided under a standard flood insurance policy under the national flood insurance program, including when considering deductibles, exclusions, and conditions offered by the insurer;

(C)

includes—

(i)

a requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal of flood insurance coverage to—

(I)

the insured; and

(II)

the regulated lending institution or Federal agency lender;

(ii)

information about the availability of flood insurance coverage under the national flood insurance program;

(iii)

a mortgage interest clause similar to the clause contained in a standard flood insurance policy under the national flood insurance program; and

(iv)

a provision requiring an insured to file suit not later than 1 year after date of a written denial of all or part of a claim under the policy; and

(D)

contains cancellation provisions that are as restrictive as the provisions contained in a standard flood insurance policy under the national flood insurance program.

(c)

Exceptions to purchase requirements

(1)

State-owned property

(2)

Small loans

Notwithstanding any other provision of this section, subsections (a) and (b) shall not apply to any loan having—

(A)

an original outstanding principal balance of $5,000 or less; and

(B)

a repayment term of 1 year or less.

(3)

Detached structures

(d)

Escrow of flood insurance payments

(1)

Regulated lending institutions

(A)

Federal entities responsible for lending regulations

(B)

Limitation

Except as may be required under applicable State law, a Federal entity for lending regulation may not direct or require a regulated lending institution to deposit premiums or fees for flood insurance under the National Flood Insurance Act of 1968 in an escrow account on behalf of a borrower under subparagraph (A)—

(i)

if—

(I)

the regulated lending institution has total assets of less than $1,000,000,000; and

(II)

on or before July 6, 2012, the regulated lending institution—

(aa)

in the case of a loan secured by residential improved real estate or a mobile home, was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of the loan; and

(bb)

did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home; or

(ii)

in the case of a loan that—

(I)

is in a junior or subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which flood insurance is being provided at the time of the origination of the loan;

(II)

is secured by residential improved real estate or a mobile home that is part of a condominium, cooperative, or other project development, if the residential improved real estate or mobile home is covered by a flood insurance policy that—

(aa)

meets the requirements that the regulated lending institution is required to enforce under subsection (b)(1);

(bb)

is provided by the condominium association, cooperative, homeowners association, or other applicable group; and

(cc)

the premium for which is paid by the condominium association, cooperative, homeowners association, or other applicable group as a common expense;

(III)

is secured by residential improved real estate or a mobile home that is used as collateral for a business purpose;

(IV)

is a home equity line of credit;

(V)

is a nonperforming loan; or

(VI)

has a term of not longer than 12 months.

(2)

Federal agency lenders

(3)

Applicability of RESPA

(4)

“Residential improved real estate” defined

(5)

Applicability

(e)

Placement of flood insurance by lender

(1)

Notification to borrower of lack of coverage

(2)

Purchase of coverage on behalf of borrower

(3)

Termination of force-placed insurance

Within 30 days of receipt by the lender or servicer of a confirmation of a borrower’s existing flood insurance coverage, the lender or servicer shall—

(A)

terminate any insurance purchased by the lender or servicer under paragraph (2); and

(B)

refund to the borrower all premiums paid by the borrower for any insurance purchased by the lender or servicer under paragraph (2) during any period during which the borrower’s flood insurance coverage and the insurance coverage purchased by the lender or servicer were each in effect, and any related fees charged to the borrower with respect to the insurance purchased by the lender or servicer during such period.

(4)

Sufficiency of demonstration

(5)

Review of determination regarding required purchase

(A)

In general

(B)

Effect of determination

(C)

Effect of failure to respond

(6)

Applicability

(f)

Civil monetary penalties for failure to require flood insurance or notify

(1)

Civil monetary penalties against regulated lenders

(2)

Lender violations

The violations referred to in paragraph (1) shall include—

(A)

making, increasing, extending, or renewing loans in violation of—

(i)

the regulations issued pursuant to subsection (b) of this section;

(ii)

the escrow requirements under subsection (d) of this section; or

(iii)

the notice requirements under section 1364 of the National Flood Insurance Act of 1968 [42 U.S.C. 4104a]; or

(B)

failure to provide notice or purchase flood insurance coverage in violation of subsection (e) of this section.

(3)

Civil monetary penalties against GSE’s

(A)

In general

(B)

“Enterprise” defined

(4)

Notice and hearing

(5)

Amount

(6)

Lender compliance

(7)

Effect of transfer on liability

(8)

Deposit of penalties

(9)

Additional penalties

(10)

Statute of limitations

(g)

Other actions to remedy pattern of noncompliance

(1)

Authority of Federal entities for lending regulation

(2)

Determination of violations

A determination under this paragraph shall be a finding that—

(A)

the regulated lending institution has engaged in a pattern and practice of noncompliance in violation of the regulations issued pursuant to subsection (b), (d), or (e) or the notice requirements under section 1364 of the National Flood Insurance Act of 1968 [42 U.S.C. 4104a]; and

(B)

the regulated lending institution has not demonstrated measurable improvement in compliance despite the assessment of civil monetary penalties under subsection (f).

(h)

Fee for determining location

Notwithstanding any other Federal or State law, any person who makes a loan secured by improved real estate or a mobile home or any servicer for such a loan may charge a reasonable fee for the costs of determining whether the building or mobile home securing the loan is located in an area having special flood hazards, but only in accordance with the following requirements:

(1)

Borrower fee

The borrower under such a loan may be charged the fee, but only if the determination—

(A)

is made pursuant to the making, increasing, extending, or renewing of the loan that is initiated by the borrower;

(B)

is made pursuant to a revision or updating under section 1360(f) 4

 So in original. Probably should be followed by “of the National Flood Insurance Act of 1968”.

[42 U.S.C. 4101(f)] of the floodplain areas and flood-risk zones or publication of a notice or compendia under subsection (h) or (i) of section 1360 4 [42 U.S.C. 4101(h), (i)] that affects the area in which the improved real estate or mobile home securing the loan is located or that, in the determination of the Administrator, may reasonably be considered to require a determination under this subsection; or

(C)

results in the purchase of flood insurance coverage pursuant to the requirement under subsection (e)(2).

(2)

Purchaser or transferee fee

(Pub. L. 93–234, title I, § 102, Dec. 31, 1973, 87 Stat. 978; Pub. L. 98–181, title I [title IV, § 451(e)(1)], Nov. 30, 1983, 97 Stat. 1229; Pub. L. 103–325, title V, §§ 522–526, 531, 582(c), Sept. 23, 1994, 108 Stat. 2257–2262, 2267, 2287; Pub. L. 110–289, div. A, title I, § 1161(e), July 30, 2008, 122 Stat. 2780; Pub. L. 112–141, div. F, title II, §§ 100208, 100209(a), 100238(a)(1), 100239(a), 100244(a), July 6, 2012, 126 Stat. 919, 920, 958, 966; Pub. L. 112–281, § 1, Jan. 14, 2013, 126 Stat. 2485; Pub. L. 113–89, §§ 13(a), 25(a), Mar. 21, 2014, 128 Stat. 1026, 1030.)

cite as: 42 USC 4012a