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U.S. Code as of:
01/19/04
Section 4012a. Flood insurance purchase and compliance requirements and escrow accounts
(a) Amount and term of coverage
After the expiration of sixty days following December 31, 1973,
no Federal officer or agency shall approve any financial assistance
for acquisition or construction purposes for use in any area that
has been identified by the Director as an area having special flood
hazards and in which the sale of flood insurance has been made
available under the National Flood Insurance Act of 1968 [42 U.S.C.
4001 et seq.], unless the building or mobile home and any personal
property to which such financial assistance relates is covered by
flood insurance in an amount at least equal to its development or
project cost (less estimated land cost) or to the maximum limit of
coverage made available with respect to the particular type of
property under the National Flood Insurance Act of 1968, whichever
is less: Provided, That if the financial assistance provided is in
the form of a loan or an insurance or guaranty of a loan, the
amount of flood insurance required need not exceed the outstanding
principal balance of the loan and need not be required beyond the
term of the loan. The requirement of maintaining flood insurance
shall apply during the life of the property, regardless of transfer
of ownership of such property.
(b) Requirement for mortgage loans
(1) Regulated lending institutions
Each Federal entity for lending regulation (after consultation
and coordination with the Financial Institutions Examination
Council established under the Federal Financial Institutions
Examination Council Act of 1974 [12 U.S.C. 3301 et seq.]) shall
by regulation direct regulated lending institutions not to make,
increase, extend, or renew any loan secured by improved real
estate or a mobile home located or to be located in an area that
has been identified by the Director as an area having special
flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968 [42
U.S.C. 4001 et seq.], unless the building or mobile home and any
personal property securing such loan is covered for the term of
the loan by flood insurance in an amount at least equal to the
outstanding principal balance of the loan or the maximum limit of
coverage made available under the Act with respect to the
particular type of property, whichever is less.
(2) Federal agency lenders
A Federal agency lender may not make, increase, extend, or
renew any loan secured by improved real estate or a mobile home
located or to be located in an area that has been identified by
the Director as an area having special flood hazards and in which
flood insurance has been made available under the National Flood
Insurance Act of 1968, unless the building or mobile home and any
personal property securing such loan is covered for the term of
the loan by flood insurance in the amount provided in paragraph
(1). Each Federal agency lender shall issue any regulations
necessary to carry out this paragraph. Such regulations shall be
consistent with and substantially identical to the regulations
issued under paragraph (1).
(3) Government-sponsored enterprises for housing
The Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation shall implement procedures reasonably
designed to ensure that, for any loan that is -
(A) secured by improved real estate or a mobile home located
in an area that has been identified, at the time of the
origination of the loan or at any time during the term of the
loan, by the Director as an area having special flood hazards
and in which flood insurance is available under the National
Flood Insurance Act of 1968, and
(B) purchased by such entity,
the building or mobile home and any personal property securing
the loan is covered for the term of the loan by flood insurance
in the amount provided in paragraph (1).
(4) Applicability
(A) Existing coverage
Except as provided in subparagraph (B), paragraph (1) shall
apply on September 23, 1994.
(B) New coverage
Paragraphs (2) and (3) shall apply only with respect to any
loan made, increased, extended, or renewed after the expiration
of the 1-year period beginning on September 23, 1994. Paragraph
(1) shall apply with respect to any loan made, increased,
extended, or renewed by any lender supervised by the Farm
Credit Administration only after the expiration of the period
under this subparagraph.
(C) Continued effect of regulations
Notwithstanding any other provision of this subsection, the
regulations to carry out paragraph (1), as in effect
immediately before September 23, 1994, shall continue to apply
until the regulations issued to carry out paragraph (1) as
amended by section 522(a) of Public Law 103-325 take effect.
(c) Exceptions to purchase requirements
(1) State-owned property
Notwithstanding the other provisions of this section, flood
insurance shall not be required on any State-owned property that
is covered under an adequate State policy of self-insurance
satisfactory to the Director. The Director shall publish and
periodically revise the list of States to which this subsection
applies.
(2) Small loans
Notwithstanding any other provision of this section,
subsections (a) and (b) of this section shall not apply to any
loan having -
(A) an original outstanding principal balance of $5,000 or
less; and
(B) a repayment term of 1 year or less.
(d) Escrow of flood insurance payments
(1) Regulated lending institutions
Each Federal entity for lending regulation (after consultation
and coordination with the Financial Institutions Examination
Council) shall by regulation require that, if a regulated lending
institution requires the escrowing of taxes, insurance premiums,
fees, or any other charges for a loan secured by residential
improved real estate or a mobile home, then all premiums and fees
for flood insurance under the National Flood Insurance Act of
1968 [42 U.S.C. 4001 et seq.] for the real estate or mobile home
shall be paid to the regulated lending institution or other
servicer for the loan in a manner sufficient to make payments as
due for the duration of the loan. Upon receipt of the premiums,
the regulated lending institution or servicer of the loan shall
deposit the premiums in an escrow account on behalf of the
borrower. Upon receipt of a notice from the Director or the
provider of the insurance that insurance premiums are due, the
regulated lending institution or servicer shall pay from the
escrow account to the provider of the insurance the amount of
insurance premiums owed.
(2) Federal agency lenders
Each Federal agency lender shall by regulation require and
provide for escrow and payment of any flood insurance premiums
and fees relating to residential improved real estate and mobile
homes securing loans made by the Federal agency lender under the
circumstances and in the manner provided under paragraph (1). Any
regulations issued under this paragraph shall be consistent with
and substantially identical to the regulations issued under
paragraph (1).
(3) Applicability of RESPA
Escrow accounts established pursuant to this subsection shall
be subject to the provisions of section 10 of the Real Estate
Settlement Procedures Act of 1974 [12 U.S.C. 2609].
(4) "Residential improved real estate" defined
For purposes of this subsection, the term "residential improved
real estate" means improved real estate for which the improvement
is a residential building.
(5) Applicability
This subsection shall apply only with respect to any loan made,
increased, extended, or renewed after the expiration of the
1-year period beginning on September 23, 1994.
(e) Placement of flood insurance by lender
(1) Notification to borrower of lack of coverage
If, at the time of origination or at any time during the term
of a loan secured by improved real estate or by a mobile home
located in an area that has been identified by the Director (at
the time of the origination of the loan or at any time during the
term of the loan) as an area having special flood hazards and in
which flood insurance is available under the National Flood
Insurance Act of 1968 [42 U.S.C. 4001 et seq.], the lender or
servicer for the loan determines that the building or mobile home
and any personal property securing the loan is not covered by
flood insurance or is covered by such insurance in an amount less
than the amount required for the property pursuant to paragraph
(1), (2), or (3) of subsection (b) of this section, the lender or
servicer shall notify the borrower under the loan that the
borrower should obtain, at the borrower's expense, an amount of
flood insurance for the building or mobile home and such personal
property that is not less than the amount under subsection (b)(1)
of this section, for the term of the loan.
(2) Purchase of coverage on behalf of borrower
If the borrower fails to purchase such flood insurance within
45 days after notification under paragraph (1), the lender or
servicer for the loan shall purchase the insurance on behalf of
the borrower and may charge the borrower for the cost of premiums
and fees incurred by the lender or servicer for the loan in
purchasing the insurance.
(3) Review of determination regarding required purchase
(A) In general
The borrower and lender for a loan secured by improved real
estate or a mobile home may jointly request the Director to
review a determination of whether the building or mobile home
is located in an area having special flood hazards. Such
request shall be supported by technical information relating to
the improved real estate or mobile home. Not later than 45 days
after the Director receives the request, the Director shall
review the determination and provide to the borrower and the
lender with a letter stating whether or not the building or
mobile home is in an area having special flood hazards. The
determination of the Director shall be final.
(B) Effect of determination
Any person to whom a borrower provides a letter issued by the
Director pursuant to subparagraph (A), stating that the
building or mobile home securing the loan of the borrower is
not in an area having special flood hazards, shall have no
obligation under this title )1(! to require the purchase of
flood insurance for such building or mobile home during the
period determined by the Director, which shall be specified in
the letter and shall begin on the date on which such letter is
provided.
(C) Effect of failure to respond
If a request under subparagraph (A) is made in connection
with the origination of a loan and the Director fails to
provide a letter under subparagraph (A) before the later of (i)
the expiration of the 45-day period under such subparagraph, or
(ii) the closing of the loan, no person shall have an
obligation under this title )1(! to require the purchase of
flood insurance for the building or mobile home securing the
loan until such letter is provided.
(4) Applicability
This subsection shall apply to all loans outstanding on or
after September 23, 1994.
(f) Civil monetary penalties for failure to require flood insurance
or notify
(1) Civil monetary penalties against regulated lenders
Any regulated lending institution that is found to have a
pattern or practice of committing violations under paragraph (2)
shall be assessed a civil penalty by the appropriate Federal
entity for lending regulation in the amount provided under
paragraph (5).
(2) Lender violations
The violations referred to in paragraph (1) shall include -
(A) making, increasing, extending, or renewing loans in
violation of -
(i) the regulations issued pursuant to subsection (b) of
this section;
(ii) the escrow requirements under subsection (d) of this
section; or
(iii) the notice requirements under section 1364 of the
National Flood Insurance Act of 1968 [42 U.S.C. 4104a]; or
(B) failure to provide notice or purchase flood insurance
coverage in violation of subsection (e) of this section.
(3) Civil monetary penalties against GSE's
(A) In general
If the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation is found by the Director of the
Office of Federal Housing Enterprise Oversight of the
Department of Housing and Urban Development to have a pattern
or practice of purchasing loans in violation of the procedures
established pursuant to subsection (b)(3) of this section, the
Director of such Office shall assess a civil penalty against
such enterprise in the amount provided under paragraph (5) of
this subsection.
(B) "Enterprise" defined
For purposes of this subsection, the term "enterprise" means
the Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation.
(4) Notice and hearing
A penalty under this subsection may be issued only after notice
and an opportunity for a hearing on the record.
(5) Amount
A civil monetary penalty under this subsection may not exceed
$350 for each violation under paragraph (2) or paragraph (3). The
total amount of penalties assessed under this subsection against
any single regulated lending institution or enterprise during any
calendar year may not exceed $100,000.
(6) Lender compliance
Notwithstanding any State or local law, for purposes of this
subsection, any regulated lending institution that purchases
flood insurance or renews a contract for flood insurance on
behalf of or as an agent of a borrower of a loan for which flood
insurance is required shall be considered to have complied with
the regulations issued under subsection (b) of this section.
(7) Effect of transfer on liability
Any sale or other transfer of a loan by a regulated lending
institution that has committed a violation under paragraph (1),
that occurs subsequent to the violation, shall not affect the
liability of the transferring lender with respect to any penalty
under this subsection. A lender shall not be liable for any
violations relating to a loan committed by another regulated
lending institution that previously held the loan.
(8) Deposit of penalties
Any penalties collected under this subsection shall be paid
into the National Flood Mitigation Fund under section 1367 of the
National Flood Insurance Act of 1968 [42 U.S.C. 4104d].
(9) Additional penalties
Any penalty under this subsection shall be in addition to any
civil remedy or criminal penalty otherwise available.
(10) Statute of limitations
No penalty may be imposed under this subsection after the
expiration of the 4-year period beginning on the date of the
occurrence of the violation for which the penalty is authorized
under this subsection.
(g) Other actions to remedy pattern of noncompliance
(1) Authority of Federal entities for lending regulation
A Federal entity for lending regulation may require a regulated
lending institution to take such remedial actions as are
necessary to ensure that the regulated lending institution
complies with the requirements of the national flood insurance
program if the Federal agency for lending regulation makes a
determination under paragraph (2) regarding the regulated lending
institution.
(2) Determination of violations
A determination under this paragraph shall be a finding that -
(A) the regulated lending institution has engaged in a
pattern and practice of noncompliance in violation of the
regulations issued pursuant to subsection (b), (d), or (e) of
this section or the notice requirements under section 1364 of
the National Flood Insurance Act of 1968 [42 U.S.C. 4104a]; and
(B) the regulated lending institution has not demonstrated
measurable improvement in compliance despite the assessment of
civil monetary penalties under subsection (f) of this section.
(h) Fee for determining location
Notwithstanding any other Federal or State law, any person who
makes a loan secured by improved real estate or a mobile home or
any servicer for such a loan may charge a reasonable fee for the
costs of determining whether the building or mobile home securing
the loan is located in an area having special flood hazards, but
only in accordance with the following requirements:
(1) Borrower fee
The borrower under such a loan may be charged the fee, but only
if the determination -
(A) is made pursuant to the making, increasing, extending, or
renewing of the loan that is initiated by the borrower;
(B) is made pursuant to a revision or updating under section
1360(f) )2(! [42 U.S.C. 4101(f)] of the floodplain areas and
flood-risk zones or publication of a notice or compendia under
subsection (h) or (i) of section 1360 )2(! [42 U.S.C. 4101(h),
(i)] that affects the area in which the improved real estate or
mobile home securing the loan is located or that, in the
determination of the Director, may reasonably be considered to
require a determination under this subsection; or
(C) results in the purchase of flood insurance coverage
pursuant to the requirement under subsection (e)(2) of this
section.
(2) Purchaser or transferee fee
The purchaser or transferee of such a loan may be charged the
fee in the case of sale or transfer of the loan.
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