Closings During NFIP Lapse??? New Guidance Issued

In order for mortgages to be created, lenders rely on federal regulations requiring the existance of flood insurance on the property being closed. The problem has occurred because Congress has recessed without extending authority for the National Flood Insurance Program (NFIP) which expired on March 28, 2010. By law, flood insurance is required for the purchase of real estate in a 100-year floodplain. Most of the property here in Tampa Bay is in a flood plain area.

Insurers may not issue new or renewal policies or increase the coverage of existing policies backed by the NFIP while it's expired. As a result of the National Association's call for action, regulators have issued guidance as to how to close properties during the NFIP lapse. Six of the nation's largest lending authorities have formed a consensus that loan closings may still occur during the NFIP lapse with verification of the submission of a NFIP flood policy application and premium payment submission to the insurance provider.

When Congress returns on April 12, NAR will encourage them to act swiftly to reauthorize and extend the NFIP, and insist that the reauthorization should be made retroactive to March 28, 2010, so that any properties that are flooded during this lapse will be covered by the program.

According to the Governmental Affairs website, FEMA, which administers the NFIP, issued guidance that:

• Existing flood insurance policies that were in effect on March 28 (when NFIP expired) will remain in effect and would not be affected.
• While new flood policies may not be issued after that date, new policies for which payment was received or in case of loan closings, the application was dated on or before March 28 -- will be issued.
• Also renewal policies may not be issued until the NFIP is extended; however, there is a 30-day grace period during which the policy remains in effect following its expiration date.