The Division of Banks has published answers to frequently asked questions to provide guidance on the Division’s implementation of Chapter 177 of the Acts of 2014, An Act Further Regulating Flood Insurance(“Chapter 177”), which was signed into law on July 23, 2014 and became effective on November 20. According to the Division’s November guidance, the Division intends to issue regulations under Chapter 177, which will include a form of model notice to satisfy the written notice requirements in Chapter 177. The Division included a sample form of notice with the answers to frequently asked questions for use by creditors until the Division’s regulations become effective. Prior to the effective date of the implementing regulations and the model notice, the Division said that the notice required by Chapter 177 may be combined with another disclosure or notice. The Division’s guidance advises that any such combined disclosure containing the notice required by Chapter 177 must be provided to the purchaser or owner of the subject real estate at the time the purchaser or owner is notified of the need to purchase or pay for flood insurance in accordance with the timing requirements of the new law. The provisions of Chapter 177 apply to loan applications received on or after November 20 and to any loan application that was pending on November 20 for which the determination of the need to purchase flood insurance was made on or after November 20. Chapter 177 also applies to any existing mortgage on residential property as of November 20 that is not located in a special flood hazard area designated by the Federal Insurance Administrator as of that date, but becomes designated as within a special flood hazard area after that date.
Nutter Notes: Chapter 177 prohibits creditors and creditors’ representatives from requiring flood insurance that is greater than the balance of a residential mortgage loan, includes coverage for contents, or that includes a deductible of less than $5,000. The provisions of Chapter 177 (codified at Massachusetts General Laws chapter 183, section 69) apply to purchase money mortgages, subordinate liens, home equity lines of credit, and home equity loans. Chapter 177 also requires that creditors, creditors’ representatives, and insurance producers provide borrowers with a notice about flood insurance coverage before flood insurance is purchased. Creditors and creditors’ representatives are required to comply with Chapter 177 before the Division finalizes regulations to implement the new law, including the notice requirements. The Division has issued proposed regulations to implement Chapter 177, and has scheduled a public hearing on the proposed regulations for December 16, 2014. Among other things, the proposed regulations would require a creditor to accept, upon request by the owner of the subject property, a reduction in the amount of flood insurance coverage upon renewal of the required flood insurance policy to an amount equal to the outstanding principal mortgage balance at the beginning of the year in which the renewal would become effective.