Banker helps borrower dispute flood insurance requirement

Mortgage banker: Harry Sessa

Purchase price: $297,000

Loan amount: $267,300

Loan type: Fixed conventional

Backstory: Harry Sessa’s client purchasing a home on the Shoreline was upset when they found out the home they were buying was in a flood zone. An additional flood insurance premium was mandated to be part of their monthly escrows associated with their home loan.

The client felt their new home was too far from Long Island Sound to be in a flood zone. Under federal law, the purchase of flood insurance is mandatory for all mortgages located in flood zones A or V.

The client asked Harry about disputing the banks requirement for flood insurance as the premium was about one third of the cost of his required full homeowners’ policy. Fortunately, this additional premium did not affect the borrower’s ability to qualify.

Sessa recommended to the client that before they decide to dispute the determination, they should go to FEMA’s website, (https://msc.fema.gov/portal/ home) and type the address to get an idea whether there may be a reason for a dispute.

The client’s search was not going to be absolutely definitive on whether or not the bank will ultimately require flood coverage, but it would give them some indication.

Borrowers who have reason to dispute the flood hazard determination may then request a Letter of Determination Review (LODR) to appeal a lender’s flood zone determination. FEMA charges a nominal fee when a request is made to review the flood maps. The request must be made jointly by the lender and borrower within 45 days of the notice being sent by the lender to the borrower stating the building is located within the Special Flood Hazard Area.

If the flood insurance determination does not occur before the end of the 45-day response time, the purchase of flood insurance is required.

With some anticipation of expediting the review, Sessa suggested the Realtor assist by going to town hall and gathering the FEMA maps with local maps and elevations for the home as well as proximity to the Sound and nearby marshlands.

Less than three weeks after submitting the required documents to FEMA, it was determined Sessa’s client’s new home was outside of a High Risk flood zone. If the determination did not go in the borrowers favor, the borrower would have retained the right to appeal this determination after closing.

When FEMA determines a home is not located in a risky flood zone after the closing, the bank would cancel the flood insurance requirement for the required policy term assuming no flood insurance claim on the policy has been made.

However, an ounce of prevention when it comes to flood insurance is often better than the cost should major flooding occur. Many would argue given climate change, it may be better to pay now and dispute later, if at all.