Maine Association of Mortgage Professionals Introduction to Flood Zones Presented by: James D. Nadeau, P.L.S., C.F.M., C.F.S., Realtor

Why Regulate Flood Zones? Flood zone delineations are created to protect people from the risks of developing in flood hazard areas. Earlier attempts to keep water away from people by constructing dams, levees, etc. proved inadequate. Regulations were necessary to keep people away from the water!

Base Flood Elevation (BFE) The height above sea level to which flood water would be expected to rise in a base, or 100 year flood event. 100 year flood 1 % annual chance of being equaled or exceeded in a given year 100 year flood has a 26% chance of occurring over the life of a 30-year mortgage loan

The Floodway No development is permitted in the floodway, unless a licensed engineer can certify through scientific analysis that it will cause “no rise” to the BFE. Floodway: the main channel of a watercourse, including adjacent floodplains necessary to carry the selected flood without increasing flood elevations significantly.

Early Flood Zone Regulations Initial approach: “Zero” flood height increase across the entire floodplain. Not very practical! Expanded regulations to acknowledge: individual existing uses development needs social, economic, and natural benefits private property rights, etc.

The National Flood Insurance Program Created in 1968 The NFIP’s approach was based on the rational of selecting a minimum criterion (no more than one foot rise) to designate a floodway, that would be a compromise between prohibiting encroachments into the floodplain, while permitting economical land use and protection from unreasonable invasion of private and public rights.

NFIP Basic Parts Insurance Regulations Maps

Base Flood Elevation Insurance - used as an accurate numerical value for determining flood risk. Regulation – used as an accurate numerical value for permit approvals. Design or planning – should only be used as an approximate or predicted elevation.

Special Flood Hazard Areas (SFHA) FEMA-identified high-risk flood area where flood insurance is mandatory for property owners. Shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map (FIRM) as being in an A Zone or V Zone (coastal flood zones)

What is flood insurance? The National Flood Insurance Program provides federal flood insurance to participating communities, to provide monetary protection against direct physical loss by or from a flood to an insured property. Standard homeowners insurance does not cover property damage from floods!

Lender involvement 1973: Federal government mandates flood insurance coverage for properties in designated flood hazard areas by requiring federally regulated banks, mortgage companies, loan services, and other lending institutions to make flood insurance coverage a condition of the loan.

Mandatory Purchase Requirement The Flood Disaster Protection Act of 1973 Federally regulated lending institutions cannot make, increase, extend, or renew a loan on improved real estate located in a Special Flood Hazard Area in a community that participates in the NFIP, unless flood insurance is secured for the life of the loan.

1994: National Flood Insurance Reform Act Strengthened the mandatory purchase requirement by placing stricter penalties against lenders that failed to comply Increased the maximum amount of flood insurance coverage, $250,000/$100,000 for residential and $500,000/$500,000 for commercial Established a grant program for mitigation plans and projects Developed a standard form and criteria for documenting lending institutions’ compliance Increased cost of compliance provides payment up to $35,000 if a building covered by the NFIP’s Standard Flood Insurance Policy becomes substantially or repetitively damaged. Pays for the costs to elevate, floodproof, demolish, or relocate the structure.

Minimum Coverage Required by Lenders to be in Compliance For loans secured by improved real estate located in an SFHA, lenders must require flood insurance in the amount of: At least equal to the outstanding principal balance of the loan up to the maximum limit of coverage available. Coverage limited to the value of the building (excludes value of the land)

Common Lender Violations Violations under federal regulations include making, increasing, renewing, or extending a loan on property in SHFA without: Placing flood insurance in the appropriate amount Escrowing premiums for flood insurance Providing required notice to the borrower Providing notice of change of servicer

Uses Horizontal scaling only, no elevations! Flood Determinations What is a Flood Determination? An official declaration stating whether or not a property lies within a Special Flood Hazard Area Generally referred to as a “Flood Certificate” Certificate that protects investors and borrowers by ensuring flood insurance is purchased for properties in at-risk areas Uses Horizontal scaling only, no elevations! Who uses Flood Determinations? Any federally-regulated lender or government-sponsored enterprise is required to perform a flood zone determination for any mortgage loan they provide

Responsibility of the Lender It is the responsibility of the lender to: Determine if the property is in a Special Flood Hazard Area (SFHA) Document the determination Ensure the insurance is maintained through the life of the loan

Important Notes: Even if improvements do not fall in a Special Flood Hazard Area, lenders can still require the purchase of flood insurance! Federal regulators recommend that lenders, as a matter of safety and soundness, conduct periodic reviews of existing portfolios and perform prospective analyses on acquisitions, as well as monitor changes triggered by flood map revisions. The obligation to require flood insurance on designated loans falls on the lending institution.

Flood Maps & Determinations Regulatory Documents Flood zone determinations must be made using the regulatory Flood Insurance Rate Maps provided by the NFIP to the community the property is located in. A Standard Flood Hazard Determination Form (SFHDF) is a required federal document that lending institutions must have completed as a condition of securing a loan. No requirement for lenders to provide SFHDF to the borrower, but they must keep a copy of the form in the event that a regulator requires it.

DFIRM Paper FIRM

Falmouth GIS

Standard Flood Hazard Determination Form (SFHDF) Lender requests determination from a 3rd party private company (if not already provided through a mortgage loan inspection) Note “Preparer’s Information” at the bottom. This is NOT a determination made by FEMA. Private Company

Letter of Map Amendment Determination Document (Removal) FEMA approved removal of property out of the SFHA Case Number and “LOMA” in top right corner Signed by FEMA Director

But Remember… Risk Can Change! Watercourses naturally evolve Development impacts the watershed Flood maps become outdated and inaccurate Mapping errors can lead to incorrect determinations and conflicting data 25% of all flood claims occur outside the SFHA It’s incorrect to assume that if a property scales in, that the maps are incorrect, and if it scales out, they’re correct. Flood risk must be re-evaluated every time a loan for improvement to a property is considered.

Westbrook Flood Map Arrows show actual water course

Veteran’s Bridge

NFIP Elevation Certificate Completed by land surveyor to get vertical scaling data. Record elevation of lowest floor of a building. Expiration date on form: March 31, 2012 (still acceptable) Does NOT waive mandatory flood insurance. Only approved LOMAs and LOMRs can amend the FIRM and remove the requirement.

As-Built Elevation Certificates Findings of the NFIP’s Community Assistance Visits have indicated that many communities do not secure as-built certifications of lowest floor elevation. Elevation documentation based on plans and drawings is insufficient to assure that the lowest floor of the structure has indeed been built above the BFE.

Freeboard Freeboard is a factor of safety usually expressed in feet above a flood level for purposes of floodplain management. Compensates for the many unknown factors that could contribute to flood heights greater than the height calculated for a selected size flood and floodway conditions Not required by NFIP standards, but communities are encouraged to adopt at least a one-foot freeboard to account for the one-foot rise built into the concept of designating a floodway and the encroachment requirements where floodways have not been designated. Results in significantly lower flood insurance rates due to lower flood risk.

Continuous Coverage Do not cancel flood insurance prior to transferring property. Premiums can be transferred to new owners if coverage is continuous.

Understanding Flood Zones Any Questions?

Pre-FIRM & Post-FIRM Pre-FIRM Post-FIRM Built before detailed flood hazard data and flood elevations were provided to the community and usually before the community enacted comprehensive regulations on floodplain regulation. Can be insured using "subsidized" rates. Designed to help people afford flood insurance even though their buildings were not built with flood protection in mind. New construction and those built after the effective date of the first FIRM for a community. Insurance rates for Post-FIRM buildings are dependent on the elevation of the lowest floor in relation to the Base Flood Elevation (BFE).

Grandfathering Allows premium benefits after: Allows a property owner to: “Lock in” a previous Flood Zone “Lock” in a previous Base Flood Elevation Allows premium benefits after: Changes in map zones Changes to compliance issues