Relationship to Floodplain Management Requirements
Question:
When HUD recipients comply with the flood insurance purchase requirements,
is that sufficient, or must recipients also comply with HUD's floodplain
management requirements?
Answer:
Compliance with mandatory flood insurance purchase discussed below does not
constitute compliance with floodplain management requirements discussed
elsewhere under the heading of Floodplain Management.
Flood Insurance Purchase: Protecting financial loss due to flooding
damage
Question:
When is flood insurance purchase mandatory?
Answer:
Owners of HUD-assisted properties that are located within Special Flood
Hazard Areas (SFHA) must purchase and maintain flood insurance protection
as a condition of approval of any HUD financial assistance for proposed
property acquisition, rehabilitation, conversion, repair or construction.
For HUD policy, see
24CFR 58.6(a) and
24 CFR 50.4(a)(2). The standard documentation for compliance is
the policy "Declarations" form issued by the National
Flood Insurance Program (NFIP) or issued by any property insurance
company offering coverage under the NFIP. In cases, where a HUD
grantee provides assistance to a SFHA-property owner, the grantee's
file for any such property shall contain "proof of purchase"
of flood insurance protection. For guidance, see"
Mandatory
Purchase of Flood Insurance Guidelines" issued by the Federal
Emergency Management Agency (FEMA).
Special Flood Hazard Areas
Question:
Where are Special Flood Hazards Areas (SFHA) located?
Answer:
Information on where SFHA are located is available on
Flood
Insurance Rate Maps (FIRM) published by the Federal Emergency
Management Agency (FEMA). The SFHA is represented on the flood map
by darkly shaded areas designated with the letter "A"
or "V."FEMA uses engineering studies to determine the
delineation of these areas or zones subject to flooding. The flood
maps are available for public review at the local planning agency
or building permit agency. Local appraisers and companies that make
flood hazard determinations for banks and other lenders in connection
with property loans also have access to these maps and data bases.
Insurance Coverage
Question:
What duration and amount of flood insurance coverage is required?
Answer:
The Flood Disaster Protection Act of 1973 (
42 U.S.C. 4001-4128) as amended by the National Flood Insurance
Reform Act of 1994 (Pub.L. 103-325, 108 Stat. 2160) prescribes the
duration and dollar amount of flood insurance under Sections 3 and
102 of the Act.
Duration of Coverage:
The statutory period for such coverage may extend beyond project
completion. For loans, loan insurance or guaranty, coverage must
be continued for the term of the loan. For grants and other non-loan
forms of assistance, coverage must be continued for the life of
the property, regardless of transfer of ownership of such property.
Section 582(c) of the Community Development and Regulatory Improvement
Act of 1994 mandates that "...The requirement of maintaining
flood insurance shall apply during the life of the property, regardless
of transfer of ownership of such property." (
42
U.S.C. 5154a)
Dollar Amount of Coverage:
For loans, loan insurance or guaranty, the amount of coverage need
not exceed the outstanding principal balance of the loan. For grants
and other non-loan forms of assistance, the amount of coverage must
be at least equal to the development or project cost (less estimated
land cost, if any) or to the maximum limit of coverage made available
by the Act with respect to the particular type of building involved
(i.e., single family, other residential, or non-residential), whichever
is less. The development or project cost is the total cost for acquiring,
constructing, reconstructing, repairing, or improving the building.
This cost must include both the Federally assisted and non-Federally
assisted portion of the cost, including any machinery, equipment,
fixtures, and furnishing. If the Federal assistance includes any
portion of the cost of any machinery, equipment, fixtures or furnishing,
the total cost of that item must be covered.
Exceptions
Question:
Are there any exceptions to the flood insurance purchase requirements?
Answer:
There are four exceptions: (a) formula grants made to States; (b) State-owned
property; (c) small loans ($5,000 or less); and (d) assisted leasing
that does not involve repairs, improvements, and acquisition. Each
category of exception is explained as follows:
- HUD State-administered assistance such as Community Development
Block Grants (CDBG), Emergency Shelter Grants (ESG), and HOME
Investment Partnership Grants are considered "formula grants
made to States." By law, "formula grants made to States"
and along with "general and special revenue sharing"
are exempt from the flood insurance purchase requirements by Section
3(a)(3) of the Act. For HUD policy, see
24
CFR 58.6(a)(3).
- Flood insurance purchase is not required for any State-owned property
that is covered under an adequate State policy of self-insurance
satisfactory to FEMA as published in a list of States to which
Section 102(c)(1) of the Act applies. Local governments and
other organizations are not authorized by this Act to be self-insurers
under the National Flood Insurance Program. If the State agency
has authority under State regulations, it may require the property
owner to purchase and maintain flood insurance to protect the
federal investment benefiting HUD assisted SFHA-property.
- Flood insurance is not required for loans having an original outstanding
principal balance of $5,000 (or less) and repayment term of
1 year (or less) as authorized by Section 102(c)(2) of the Act.
- Flood insurance is not required for HUD assisted leasing of a building
or structure provided that the assistance is not used for repairs,
improvements, and acquisition.
Effect of Non-participation in the National Flood Insurance Program
Question:
What if flood insurance is not any longer available in the community
in which the assisted SFHA property is located?
Answer:
Section 202(a) of the Act prohibits the approval of HUD assistance
for a property located within the Special Flood Hazard Area unless
the community in which the SFHA is situated is then participating
in the National Flood Insurance Program (NFIP). Check the
website
for a community's status in the NFIP and dates of the current flood
insurance rate maps. Information is also available from the FEMA
Regional Office serving that community or from local planning agency
or building permit agency.
Federal Disaster Relief Assistance
Question:
What if the property owner failed to maintain flood insurance on
a SFHA property previously assisted with Federal disaster relief
assistance?
Answer:
No Federal disaster relief assistance made available in a flood
disaster area may be used to make a payment (including any loan
assistance payment) to a person for repair, replacement, or restoration
for damage to any personal, residential, or commercial property
if that person at any time has received flood disaster assistance
that was conditional on the person first having obtained flood insurance
under the applicable Federal law and subsequently having failed
to obtain and maintain flood insurance as required under applicable
Federal law on such property (Section 582(a) of the Act). For HUD
policy, see 24 CFR 58.6(b).
Small Repairs
Question:
Does HUD financial assistance for small repairs require compliance
with the flood insurance purchase requirement?
Answer:
Yes. or improvements of any publicly or privately owned SFHA building
or mobile home requires compliance with the flood insurance purchase
requirements (see Section 3(a)(4)) of the Act.
Maintenance Activities
Question:
Does HUD financial assistance for maintenance activities require
compliance with flood insurance purchase requirement?
Answer:
No. HUD assisted "routine maintenance" activity for a SFHA
building does not require compliance with the flood insurance purchase
requirement. "Routine maintenance" activities should be
carefully distinguished from "repair" or "improvement"
of any SFHA building. "Routine maintenance" merely keeps
a building in good order and an ordinary, efficient operating condition.
It does not materially add to the value of a structure, appreciably
prolong its useful life, or adapt it to new uses, whereas "repairs"
or "improvements" might do so. Some examples of building
maintenance are:
- painting either the exterior or interior of a building,
- fixing gutters or floors,
- mending leaks or plastering, and
- replacing thermostats, broken windowpanes or door locks.
In contrast, adding a room, putting in a new system of plumbing or
electrical writing or air conditioning, installing a new roof, replacing
a boiler, or fixing of damages sustained by a building from flooding
or other hazards are considered to be "repairs" or "improvements".
However, if items that would otherwise be considered "routine
maintenance" are done as part of an extensive remodeling or
renovation of a building, the entire job is considered "a repair"
or "an improvement". (May 5, 1989 from CPD Deputy Assistant
Secretary to Regional Administrators: Attn Regional Environmental
Officers)
Environmental Exemptions and Categorical Exclusions
Question:
Is compliance with flood insurance purchase requirements required
for the exempt activities listed in
24 CFR 58.34 or to the categorical exclusions listed in
24 CFR 58.35?
Answer:
Yes. The flood insurance purchase requirements are cited at
24 CFR 58.6(a) and (b) as "Other requirements" in order
to highlight that flood insurance is not regulated by provisions
of the rule that govern environmentally exempt activities cited
at 24 CFR 58.34 or environmental categorical exclusions cited at
24 CFR 58.35.
Homeowner Property Casualty Insurance
Question:
Doesn't the homeowner property casualty insurance cover financial
loss due to flooding damage?
Answer:
Generally, homeowner and other property casualty insurance policies do not
provide coverage for potential financial loss that may be caused
by flooding damage. Many of the private insurance companies are
now marketing policies offered by the National Flood Insurance Program
along with their own property casualty insurance policies. FEMA
refers to these companies as "Write-Your-Own (WYO) Companies,
44 CFR Part 62, Subpart C.
HUD Subsidy and Limited-income Property Owners
Question:
Can HUD grant assistance be used to subsidize the purchase and maintenance
of flood insurance protection for low-income owners of SFHA property?
<Answer:
Yes, only if the specific HUD program regulations allow grant assistance
to be used for this purpose. For example, CDBG program regulations
at
24 CFR 570.202(b)(7)(iii) specifically allow the use of grant assistance
for "flood insurance premiums for properties covered by the
Flood Disaster Protection Act of 1973, pursuant to
24 CFR 570.605" in connection with rehabilitation and preservation
activities. Limited income homeowners and small business owners
without other financial assets may need such financial protection,
if their property is located within the Special Flood Hazard Area.
In the case of hardship cases, the responsible entity or the recipient
agency (if other than a responsible entity) is encouraged to provide
such subsidy, if warranted.
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