Check the S.O.P. Q&A

Q – When is Flood Insurance required for a 504 transaction?

A – After the Flood Certification is reviewed by the CDC the following may be required:

(1) When any loan secured by improved real estate or a mobile home and any personal property is located in a special flood hazard area (SFHA), as determined by the Federal Emergency Management Agency (FEMA), and if the community participates in the NFIP, the borrower is required to obtain flood insurance. The policy must reflect a loss payee clause covering the lender/CDC/SBA as appropriate.

(2) After the loan is made, the borrower must maintain such flood insurance for the life of the loan. This means that if a lender (for example, a participating lender in a 7(a) loan, or the SBA, for a direct/disaster loan) increases, extends or renews the loan, it must review the adequacy of flood insurance coverage. The lender must use FEMA Form 81-93, Standard Flood Hazard Determination Form, to ascertain whether the property is in an SFHA in which flood insurance is available. The Form may be used in a printed, computerized, or electronic manner, and the lender must retain a completed copy in its files.