FHA Condominium Flood Insurance Requirements
The Federal Housing Administration has insured more than 37 million singe-family dwellings since it began in 1934. FHA insures loans on individual condominiums located within an FHA-approved project. Because a condo pertains to a larger community of units that share a common interest in the property and its common areas, the complex's homeowners' association (HOA) is responsible for meeting all flood insurance requirements, if needed, says FHA Handbook 4155.1.
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HOA Responsibility
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The HOA, not the individual borrower, is responsible for acquiring and maintaining flood insurance on a condominium project located within a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA). The statutory requirements for flood insurance on condos can be found in FEMA's Mandatory Purchase of Flood Insurance Guidance handbook, which explains the National Flood Insurance Program (NFIP) policies for various property types. According to FEMA, the HOA must obtain a Residential Condominium Building Association Policy, which was designed for condo projects that are owned as real estate. "Flood insurance coverage must protect the interest of borrowers who hold title to individual units as well as the common areas of the condominium project," advises the FHA Handbook. Common areas include, but are not limited to, parking areas, recreational facilities and common corridors, according to Real Estate ABC.
Determining Flood Hazards
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Determining and enforcing when a condo project is located within a flood hazard zone is ultimately up to the FHA lender who will originate (fund) the loan, although FHA appraisers play a role in the process as well. FHA requires the appraiser to specify "yes" or "no" as to whether any part of the property lies in a SFHA on the Valuation Conditions form (VC), a part of the condo appraisal report, according to the FHA Handbook. The appraiser must search available resources and tools, such as FEMA's official maps. In addition, FHA advises the lender conduct a separate investigation of flood hazards by ordering a flood certification through a company that guarantees the accuracy of their reports. This will help protect the lender from liability for any erroneous report on the appraisal.
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Coverage Requirements
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HOAs must be certified (approved) by FHA in order for a borrower to obtain an FHA-insured loan for a unit within their complex. The HOA must submit certain documentation to FHA for certification, including proof of flood insurance, if located within an SFHA. According to the FHA Handbook, "If any portion of the property improvements ... is located within a SFHA, the property is not eligible for FHA mortgage insurance unless ... the lender obtains a FEMA National Flood Insurance Program Elevation Certificate ...." With the certificate, a licensed engineer or land surveyor ensures that the lowest floor of the condo, its complex and common areas, are built above the 100-year flood level--an elevation of flooding that will only be matched or exceeded every 100 years.
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References
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