If we obtain a flood determination for a construction loan, the comments section of the flood certification states “land only.” Once the construction is finished, the customer generally converts the construction loan into permanent financing. If we recertify the original flood determination for the new loan, the “land only” comment cannot be removed. Is this acceptable, or do we need to obtain a new flood determination which would result in an additional fee to the borrower?

We believe that your bank should obtain a new flood determination, as the previous determination related only to the land securing the initial construction loan.

The National Flood Insurance Act permits lenders to “rely on a previous determination of whether the building or mobile home is located in an area having special flood hazards.” However, this authority does not appear to extend to a “land only” determination that does not relate to a building or mobile home. Also, we do not believe that a determination stating “land only” would satisfy the flood insurance requirements, which apply to buildings and mobile home, including buildings in the course of construction, but not to land. Consequently, we recommend obtaining a new flood determination covering the newly-constructed building.

For resources related to our guidance, please see:

OCC Flood Insurance Rules, 12 CFR 22.3(a) (“A national bank or Federal savings association shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the building or mobile home and any personal property that secures a loan and not the land itself.”)

National Flood Insurance Act, 42 USC 4104b(e) (“Any person increasing, extending, renewing, or purchasing a loan secured by improved real estate or a mobile home may rely on a previous determination of whether the building or mobile home is located in an area having special flood hazards (and shall not be liable for any error in such previous determination), if the previous determination was made not more than 7 years before the date of the transaction and the basis for the previous determination has been set forth on a form under this section, unless (1) map revisions or updates pursuant . . . after such previous determination have resulted in the building or mobile home being located in an area having special flood hazards; . . . .”)

Interagency Q&As Regarding Flood Insurance, 19. Is a loan secured only by land that is located in an SFHA in which flood insurance is available under the Act and that will be developed into buildable lot(s) a designated loan that requires flood insurance? (“Answer: No. A designated loan is defined as a loan secured by a building or mobile home that is located or to be located in an SFHA in which flood insurance is available under the Act. Any loan secured only by land that is located in an SFHA in which flood insurance is available is not a designated loan since it is not secured by a building or mobile home.”)

OCC Flood Insurance Rules, 12 CFR 22.3(c) (“Building means a walled and roofed structure, other than a gas or liquid storage tank, that is principally above ground and affixed to a permanent site, and a walled and roofed structure while in the course of construction, alteration, or repair.”)

Interagency Q&As Regarding Flood Insurance, 68. May a lender rely on a previous determination for a refinancing or assumption of a loan or multiple loans to the same borrower secured by the same property? (“Answer: It depends. . . . When the loan involves a refinancing or assumption by the same lender who obtained the original flood determination on the same property, the lender may rely on the previous determination only if the original determination was made not more than seven years before the date of the transaction, the basis for the determination was set forth on the SFHDF, and there were no map revisions or updates affecting the security property since the original determination was made. A loan refinancing or assumption made by a lender different from the one who obtained the original determination constitutes a new loan, thereby requiring a new determination. Further, if the same lender makes multiple loans to the same borrower secured by the same improved real estate, the lender may rely on its previous determination if the original determination was made not more than seven years before the date of the transaction, the basis for the determination was set forth on the SFHDF, and there were no map revisions or updates affecting the security property since the original determination was made.”)