Policy Issuance 9-95
December 12, 1995
Subject: Cancellation and refund based on the
Federal Emergency Management Agency's (FEMA) review of a lender's Special Flood
Hazard Area (SFHA) determination
Background: Subsections (a) and (b) of Section 102 of the Flood Disaster Protection Act of 1973, as amended by the National Flood Insurance Reform Act of 1994, require the purchase of flood insurance when a borrower makes a loan secured by a building or manufactured home in an SFHA. Section 102 (e) (3) of the 1973 Act, as amended by the 1994 Act, provides for a request to FEMA for review of a lender's determination that a building or a manufactured home securing a loan is in an SFHA. The FEMA rule implementing this review process was published in the Federal Register on December 5, 1995, (60 FR 62213), and is attached. Under this rule, the request for a determination review must be submitted to FEMA within 45 days of the lender's notification to the borrower that flood insurance is required, and FEMA must complete its review within 45 days of receiving the request.
If FEMA determines that the building or manufactured home is not in an SFHA, the lender has no obligation under the 1973 Act, as amended, to require the borrower to purchase flood insurance. Borrowers who have already purchased flood insurance as a result of the lender's determination that was submitted for review are thus relieved from the statutory requirement to have flood insurance. If the lender does not choose to go beyond the statutory requirement and impose a requirement for flood insurance as a business practice, it is appropriate to refund the premium in such cases.
Policy Statement: A new refund reason has been added for cancellation based on the determination, resulting from FEMA's review of a lender's determination of whether a building or manufactured home is located in an SFHA, that flood insurance is not required. Reason 10 is to be used when requesting cancellation and premium refund based on FEMA's review of an SFHA determination.
When a request for review is filed with the FEMA under Section 102 (e) (3) of the Flood Disaster Protection Act of 1973, as amended by Section 524 of the National Flood Insurance Reform Act of 1994, and the outcome of FEMA's review is that a building or manufactured home is not in an SFHA, and therefore flood insurance is not required, the NFIP policy may be canceled back to the effective date. If the insured submits a copy of FEMA's letter of determination review and a statement by the lender that it is not requiring flood insurance, a full refund, including the expense constant and Federal policy fee, will be made, providing no claim has been paid or is pending. If a claim has been paid or is pending, no refund is allowed.
Last Modified: Tuesday, 23-May-2006 11:26:39 EDT