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My bank has a flood zone discrepancy between the flood certification and the flood policy provided by the insurance agent. How can the bank resolve this discrepancy?

My bank has a flood zone discrepancy between the flood certification and the flood policy provided by the insurance agent. The loan is secured with collateral located in flood “zone AE” according to the flood certification. The insurance agent received the flood certification but wrote the policy for “zone X” and refuses to change the zone on the flood policy to AE. This policy is not subject to the Grandfather Rule, which provides a lower-cost flood insurance option for property owners who meet certain conditions when flood zones change. What should the bank do to resolve this discrepancy?

The bank should investigate the discrepancy and advise the insurance company to resolve the discrepancy. If the insurance agency declines to resolve the dispute or fails to cooperate, lenders should notify the insurance agent about the insurer’s duty, pursuant to FEMA’s letter of April 16, 2008 (W-08021), to write a flood insurance policy that covers the most hazardous flood zone.

Question and Answer 71 of the Interagency Q&As address what lenders should do in the event of discrepancies.

They explain that lenders must be concerned about a discrepancy in the zone designation on the Standard Flood Hazard Determination Form (the SFHDF) and the one on the flood insurance policy when the discrepancy is between a high-risk zone (A or V) and a low-or moderate-risk zone (B, C, D, or X). This appears to be the case here.

The Q&A requires lenders to compare the zones on the policies they receive with those on the SFHD and, if the insurance policy shows a lower risk zone than the SFHDF, to investigate.

If the “Grandfather Rule” you mentioned does not apply, lenders should determine whether the difference in flood zone designations is the result of a mistake. If not a mistake, a lender and borrower may jointly request that FEMA review the determination to confirm or review the accuracy of the original determination if certain conditions are met.

If, despite these efforts, the discrepancy is not resolved, or in the course of attempting to resolve a discrepancy, a borrower or an insurance company or its agent is uncooperative in assisting a lender in this attempt, the lender should notify the insurance agent about the insurer’s duty, pursuant to FEMA’s letter of April 16, 2008 (W-08021) “to write a flood insurance policy that covers the most hazardous flood zone.” The lender should include its zone information and notify the insurance company itself. The lender should substantiate these communications in its loan file. (March 2019)

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