Massachusetts Updates Flood Insurance Regulations
By Margaret Wright, J.D.
September 15, 2015 Massachusetts has finalized the recent amendments to 209 CMR 57 regarding the required purchase of flood insurance by a purchaser or owner of residential property located in a designated special flood area. These amendments are in effect as of September 11, 2015.
Limitations on Required Flood Insurance
The regulation places restrictions on required flood insurance coverage amounts. The flood insurance coverage amount may not exceed the outstanding principal mortgage balance at the beginning of the year that the flood insurance policy takes effect. For alternative transactions, the coverage amount may not exceed the full value of a home equity line of credit, or the outstanding principal for home equity loans, second, or subsequent mortgages as of the beginning of the year that the flood insurance policy takes effect.
Additionally, required flood insurance may not include a requirement of coverage for contents or a requirement that the insurance includes a deductible of less than $5,000.
A reduction in the amount of the coverage may be requested by the owner of the residential property at the time of renewal based on the outstanding principal mortgage balance at the beginning of the year that the policy is in effect. Lenders are required to accept the coverage reduction upon the request of the owner for reduction based on the principal mortgage balance at renewal.
Notice Requirements
The model notice form must be provided to the purchaser or owner of a residential property where the purchase of flood insurance is required in a designated loan transaction. The regulation defines a designated loan transaction as:
A mortgage loan secured wholly or partially by a mortgage on residential property located in a special flood hazard area and for which the sale of flood insurance is available under the National Flood Insurance Act of 1968.
The Notice about Flood Insurance Coverage form must be provided at the same time and by the same method of delivery as the Notice of Special Flood Hazards. In the case of multiple creditors only one credit need provide notice. In the case of multiple borrowers, only the primary borrower need be provided the notice.
The Notice about Flood Insurance Coverage is generally not required to be additionally provided at renewal, unless there is an “increase, extension, or renewal of the existing mortgage loan, or a new mortgage loan, made at that time or the addition of new coverage or an increase in the amount of flood insurance coverage in excess of the policy amount which was in effect for the expiring policy period.”
The Notice about Flood Insurance Coverage is required in the case of lender placed flood insurance, where during the term of the loan is it determined that a designated loan is not covered by required flood insurance or existing coverage is deemed deficient.
Notice Format
The Notice about Flood Insurance Coverage must be clear and conspicuous and include the following information:
1. The name of the borrower
2. The address of the insured residential property
3. The creditor (provider of the Notice) name and address
4. A statement on the limitations on required flood insurance as set forth in M.G.L. c.183 s.69
5. A section for borrower signature as acknowledgement of receipt
The borrower’s signature is not required to be obtained in the case of notice being provided prior to the forced placement of flood insurance.
Section 209 CMR 57.05 (3) includes the model notice form, Important Notice about Your Required Flood Insurance Coverage, which must be used.
Margaret Wright, JD, is regulatory compliance director with CLA. She is a graduate of Stonehill College and earned her juris doctor at Suffolk University Law School. She is admitted to the Massachusetts Bar.
Comments are closed.