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FEMA remapped flood zones in our area, and my bank now has loans secured by collateral in a Special Flood Hazard Area. The bank sent the required "notice of special flood hazard" to affected borrowers, but one borrower refuses to sign and return a copy. Can the bank be cited for a violation of the flood regulation?

Due to FEMA remapping of flood zones in our area, my bank has loans secured by collateral now classified to be in a Special Flood Hazard Area. The bank has sent the required "notice of special flood hazard" to borrowers, but one borrower refuses to sign and return a copy. Can the bank (FDIC supervised) be cited for a violation of the flood regulation or does proof that the notice was mailed suffice?

This may be an issue to discuss with your examiner. 12 CFR 339.9(d), requires FDIC-supervised institutions to "retain a record of the receipt of the notices by the borrower." The FDIC's Compliance Examination Manual further explains, "There is no particular form required for the record of receipt; however it should contain a statement from the borrower indicating that the borrower has received the notification." (See page 6.10 in Section V-6.1 – Flood Insurance). "Should" suggests a signed receipt is not required per se. In addition, the manual lists as an example of a record of receipt "a borrower's signed acknowledgement on a copy of the notice," again suggesting that there are other options. (Please note that as rulemaking and examination procedures are issued on an interagency basis, the OCC and Federal Reserve have similar provisions).

The question, then, is how to approach the general expectation that the bank document that the borrower has received the notice. There is a strong argument that evidence that the notice was mailed and delivered (e.g., certified mail receipt showing delivery) is sufficient — especially because, as a practical matter, the bank only has leverage to get the borrower's statement acknowledging receipt when it is "making, increasing, renewing or extending a designated loan." (March 2018)

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