PART 1806—INSURANCE Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480. Subpart A—Real Property Insurance Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 301; delegation of authority by the Sec. of Agri., 7 CFR 2.23; delegation of authority by the Asst. Sec. for Rural Development, 7 CFR 2.70; delegations of authority by Dir., OEO 29 FR 14764, 33 FR 9850. § 1806.1 General. (a) Authority. (b) Borrower to furnish insurance. (c) Borrower's selection of company. (d) Responsibility. (e) Use of Form RD 426-1, “Valuations of Buildings.” [41 FR 34571, Aug. 16, 1976, as amended at 61 FR 59777, Nov. 22, 1996; 72 FR 64121, Nov. 15, 2007; 80 FR 9864, Feb. 24, 2015] § 1806.2 Companies and policies. Property insurance policies or other evidence of insurance will be accepted from borrowers when the requirements outlined herein are complied with fully. (a) Companies. (b) Insurance policies Standard policies. (2) Other policies. (i) “Homeowner's” policies, “All Physical Loss” policies, “Broad Form” policies, and other such all-inclusive policies are acceptable if they otherwise meet the requirements of this Instruction. (ii) A builder's risk policy naming the borrower as the insured or a builder's risk endorsement for a policy issued to the borrower may be accepted during the period a building is under construction if the policy otherwise meets the requirements of this Instruction. If such a policy or endorsement does not automatically convert to full coverage when the building is completed, acceptable insurance must be obtained simultaneously with the expiration of the builder's isk provisions of the policy. (iii) A builder's risk insurance policy issued to a contractor only may not be substituted for the property insurance, the borrower is required to provide. (iv) Borrowers eligible for insurance under the National Flood Insurance Act of 1968, as amended by the Flood Disaster Act of 1973, will be serviced in accordance with subpart B of this part. (3) State instructions. (4) Binders. (5) Submission of policies. (ii) For Single Family Housing (SFH) loans secured by a first lien, the original policy or declaration page must be delivered to the closing agent. (iii) In cases where an FP or SFH loan is secured by other than a first lien and the mortgage clauses include the names of the prior mortgagees, a certificate of insurance, copy of the policy, or other evidence of insurance is acceptable. (iv) The County Supervisor will process an advance to pay for insurance only in strict compliance with provisions of § 1806.6 of this subpart. (6) Master sets. (i) One complete master set of the different insurance forms for policies issued by the insurance company must be on file in each County Office where the company insures property of Agency borrowers. (ii) The “Declaration Page” furnished by the insurance company for each borrower insured, in lieu of a complete policy, will be filed in the borrower's case folder. When a “Declaration Page” in the form of a computer printout is used by an insurance company an endorsement on every policy issued by that company or a letter from that company will be obtained and attached to the printout. However, a letter signed by an authorized official of the company and addressed to the State Director may cover all policies issued by that company in the State. Any such endorsements or letters should clearly state that the company considers the printout to be an original “Declaration Page”. Such endorsements or letters are not necessary if the printout itself clearly states that it is an original “Declaration Page.” (7) Name and location. (8) Loss or damage covered. (9) Effective date of insurance. (10) Term. This policy will be automatically extended for successive terms at expiration of the original term and of each extension thereof, upon payment of renewal premiums. It is a condition of this policy that if the policy expires or is canceled for nonpayment of premium, or for any other reason, the mortgagee will be given 10 days notice. (11) Mortgage clause. (i) If the use of a mortgage clause, other than the standard mortgage clause (without contribution), has been made mandatory by State laws or insurance regulations, a State Instruction will be issued, after prior approval is obtained from the National Office, authorizing the use of such a form. (ii) When an approved mortgage clause is printed in the policy a “Loss Payable Clause” is acceptable provided the Agency, as mortgagee, would receive payment in case of loss even though the company would not be liable to the borrower. A “Loss Payable Clause” which contains the statement that the mortgagee is “subject to all terms and conditions of the policy” is not acceptable. (iii) Whenever a new mortgage clause including the interest of the Agency is issued after the policy has been in force, the new mortgage clause must be signed by an authorized agent or officer of the company that issued the policy. Form RD 426-6, “Transmittal of Property Insurance Mortgage Clause,” may be used to transmit the mortgage clause to the insurance official. (iv) The Agency and all other mortgagees whose interests are insured by the policy will be shown either in the mortgage clause or in the “Declaration Page” in the order of priority of their mortgages. (A) “United States of America (Rural Development)” will be named in the mortgage clause for direct and insured loan mortgages naming the Agency as mortgagee, whether in its own right or as trustee under a 2(f) or other agreement with a State Rural Rehabilitation Corporation. (B) “United States of America (Rural Development), as first mortgagee or as statutory agent and insurer of such mortgagee,” will be named in the mortgage clause for insured FO mortgages naming the lender as mortgagee, whether the mortgage is held by the original or a subsequent lender or by the insurance fund or by the Agency under a trust agreement or declaration of trust. (C) If the designation is not identical to that set forth in paragraphs (b)(11)(iv)(A) or (B) of this section, whichever is applicable, it will be sufficient if the mortgagee is readily identifiable as Rural Development. (c) Evidence of premium payment. (2) [Reserved] (d) Policy restrictions. (i) Coinsurance clause. (ii) Three-fourths' value clause. (iii) Loss deductible clause. (B) For RRH, RCH, and LH organization loans this clause generally provides that loss to each project to the extent of the limitation is not recoverable. The company is liable only for loss to each project in excess of such limitation stated in the clause. This clause may be accepted where the limitation does not exceed the option shown below that is chosen by the borrower and agreed to by the Loan Approving Official and properly annotated in the borrower file. The borrower and the Official should consider the economic impact to the project when selecting the appropriate option. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 (iv) Three-fourths' loss clause. (v) Deferred loss payable clause. (vi) Construction specifications and use conditions. (2) Policies generally will not be accepted if, under the terms of the policies or local laws, contributions or assessments may be made against the Agency. However, policies which impose assessments on the borrower may be accepted only if the Agency mortgage will be recorded prior to any failure of the borrower to pay any such assessments. Policies also will not be accepted if, by their terms or other conditions, loss payments are contingent upon collective action by the Board of Directors, or the stockholders, or the members. (e) Buildings on leaseholds. (7 U.S.C. 1989; 42 U.S.C. 1480; 40 U.S.C. 442; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 301; Sec. 10 Pub. L. 93-357, 88 Stat. 392; delegation of authority by the Secretary of Agriculture, 7 CFR 2.23; delegation of authority by the Assistant Secretary for Rural Development, 7 CFR 2.70; delegations of authority by Director, OEO, 29 FR 14764, 33 FR 9850) [41 FR 34571, Aug. 16, 1976, as amended at 41 FR 49990, Nov. 12, 1976; 42 FR 33262, June 30, 1977; 43 FR 56013, Nov. 30, 1978; 44 FR 45115, Aug. 1, 1979; 51 FR 17921, May 16, 1986; 54 FR 35869, Aug. 30, 1989; 56 FR 6945, Feb. 21, 1991; 80 FR 9864, Feb. 24, 2015] § 1806.3 Coverage requirements. The County Supervisor should encourage the borrower for his own protection to insure for their depreciated replacement value (actual cash value) all essential buildings. Essential buildings include the dwelling and any other buildings that are necessary for the operation of the property or that provide income to assure orderly repayment of the loan. If insurance is for less than the depreciated replacement value of all essential buildings, the County Supervisor will see that the coverage is obtained on one or more of the most essential buildings. The minimum amount of coverage will be furnished as prescribed below: (a) Loans secured by a first lien. (2) When the unpaid balance of the loan is less than the sum of the depreciated replacement value of the essential buildings to be insured, the total amount of insurance must be at least equal to the lesser of (i) the unpaid balance of the loan, or (ii) the cost of adequate essential buildings which can be constructed for amounts less than the depreciated replacement value of the existing buildings to be insured. (3) When, by the use of loan funds or otherwise, buildings are erected or substantial improvements are made to essential buildings, the amount of insurance will be adjusted in accordance with paragraphs (a)(1) or (2) of this section, whichever is applicable. (b) Loans secured by other than first liens. (c) Exception of buildings from insurance. (i) That is not essential. (ii) In such a state of disrepair that the cost of insurance would be prohibitive. (iii) Which has a depreciated replacement value of $2,500 or less. (iv) Which is being or has been repaired with a section 504 loan of $7,500 or less. Families receiving section 504 loans should be encouraged but not required to carry insurance on their home. (v) On LH security property which was not built or repaired with Agency loan funds provided that the State Director determines that the land and other structures adequately secure the Agency loan and any prior liens. (vi) On which the hazards are so slight because of the character and construction of the building, or the cost of the insurance is so high in comparison with the value of the building that, according to common standards of judgment, it should not be insured, including but not limited to windmills, silos, and fire-cured tobacco barns. (vii) In cases where the unpaid balance of the Agency loans and any prior liens have been reduced to $2,500 or less, property insurance need not be required if the borrower wants to discontinue it, provided the County Supervisor determines that the value of the land security itself is sufficient to protect the Agency in its collection of the amount of the outstanding indebtedness. (viii) If insurance for windstorm and hail to meet all Agency requirements is not available in a hurricane area, the County Supervisor may accept from the borrower or applicant the windstorm and hail insurance policy that most nearly conforms to Agency requirements. If such an exception is made, the situation should be fully documented in the borrower's case file. However, if the best insurance policy a borrower or applicant can obtain at the time he receives a loan contains a loss deductible clause for windstorm and hail damage exceeding $250 or 10 percent of the actual cash value of the buildings, whichever amount is greater, the insurance policy, with an explanation of the reasons why more adequate insurance is not available will be submitted to the State Office for prior approval. (2) [Reserved] [41 FR 34571, Aug. 16, 1976, as amended at 56 FR 6945, Feb. 21, 1991; 80 FR 9865, Feb. 24, 2015] § 1806.4 Examining and general servicing of insurance. (a) Examination by county office of policies, endorsements, binders, and other evidence of insurance. (1) Unacceptable policies. (ii) If the borrower does not furnish acceptable insurance by the date the previous policy expired or was canceled, the County Supervisor will proceed as provided in § 1806.6. (2) Expiration records and notices. (ii) FP and Section 502 RH borrowers will be informed during the tenth month after the date of loan closing of their responsibility to carry insurance. Form RD 426-4 will be sent to these borrowers, regardless of whether there is evidence that the insurance has been renewed. Thereafter, the County Supervisor will not be required to further determine whether the borrower has adequately maintained insurance; however, if a further notice of expiration is received in the County Office, the County Supervisor will again notify the borrower by using RD 426-4 of his responsibility. (3) Release of mortgage interest. It is understood and agreed that the interest of the United States of America in the property insured hereunder ceased as of (Date of Final Payment), and that the Government shall have no interest in any loss or damage to such property occurring thereafter. (4) Lost or misplaced policies. (5) Disposition of expired and canceled policies. (b) Special servicing of insurance Vacancy or unoccupancy—tenant occupancy—increased hazard. (2) Transfer of property. (ii) In a transfer with assumption, insurance will be required in the same amount and according to the same provisions as for an initial loan of the same type. (3) Voluntary conveyance of property to the Government and foreclosure. [41 FR 34571, Aug. 16, 1976, as amended at 42 FR 33262, June 30, 1977; 50 FR 39638, Sept. 30, 1985; 54 FR 35869, Aug. 30, 1989; 57 FR 36590, Aug. 14, 1992; 69 FR 69103, Nov. 26, 2004; 80 FR 9865, Feb. 24, 2015] § 1806.5 Losses. (a) Protecting property. (1) Check the borrower's casefile for an insurance policy or other evidence of insurance. When a policy or other evidence of insurance has not been retained by the Agency, such as for FP and section 502 RH borrowers, the County Supervisor will determine whether the property was insured and whether the Agency was named as mortgagee in the insurance policy. (2) Determine that the borrower has taken such steps as are necessary to protect the interest of the Agency in the security property against further damage. When serious problems arise with respect to protecting the property from further damage, the borrower cannot or will not arrange adequate protection for the property, or when legal action appears to be necessary, the County Supervisor will arrange for emergency protection and immediately refer the case with complete information to the State Director. (b) Loss covered by insurance. (2) If the Agency is not listed as mortgagee in the insurance policy, the County Supervisor will contact the borrower to determine whether he has received the loss proceeds. If the borrower has received the loss proceeds but not yet paid for improvements to repair or replace the property, or has not received the loss proceeds the County Supervisor will: (i) Notify the insurance company in writing of the Agency's interest in the security property and request that the loss proceeds be made payable jointly to the Agency and the borrower. (ii) Inform the borrower of his responsibility for repairing or replacing the damaged or destroyed property or for authorized disposition of the loss proceeds as outlined in paragraph (b)(1) of this section. (c) Loss drafts—when loan is secured by a first mortgage. (i) Where the amount of the loss is $1,000 or less and the borrower will use the funds for repairing or replacing an essential building, the loss draft may be endorsed without recourse and given to the borrower upon satisfactory proof that the repairs or replacements have been made, or upon satisfactory assurance that the work will be performed. (ii) When (A) the essential buildings are not to be repaired or replaced and other suitable buildings are not to be erected, or (B) a balance remains after all repairs, replacements, and other authorized disbursements have been made, such insurance funds will be applied on prior liens or as an extra payment to the borrower's loan accounts secured by the real estate or disposed of in accordance with the general principles applicable to the use of proceeds from the sale of a part of the security contained in applicable security servicing regulations for the type loan involved. (iii) An insurance payment for loss or damage to a nonessential building the borrower voluntarily insured will be (A) applied on prior liens, or to current delinquencies to the Agency or as an extra payment on the borrower's loan accounts secured by real estate, (B) disposed of as authorized by the State Director in accordance with the general principles applicable to the use of proceeds from the sale of a part of the security contained in applicable security servicing regulations for the type loan involved, or (C) used for other purposes as authorized by the State Director if the loan is adequately secured and the loan account is current. (iv) When the indebtedness secured by the insured property has been paid in full or the draft is in payment for loss of property on which the Agency has no claim, a loss draft which includes the Agency as a joint payee may be endorsed without recourse and delivered to the borrower. (2) [Reserved] (d) Loss drafts—When loan is secured by other than first mortgage. (2) When the loss draft includes the interest of a prior mortgagee, the County Supervisor is authorized to endorse and process the draft as follows: (i) When the prior mortgagee will permit the use of such loss funds to repair or replace the damaged building, the draft may be endorsed without recourse upon satisfactory proof that the repairs or replacements have been made or upon satisfactory assurance that the work will be performed. (ii) When the amount of the draft does not exceed the amount of the indebtedness then secured by the prior mortgage as stated in writing by the holder of the prior mortgage, and the holder of the prior mortgage has agreed in a written statement to the County Supervisor that he will apply such funds as a payment on the borrower's prior mortgage indebtedness, the draft may be endorsed without recourse. (iii) When the amount of the draft exceeds the amount of the indebtedness then secured by the prior mortgage, as stated in writing by the holder, and he has agreed in writing to pay such indebtedness from the loss funds, the draft will be endorsed without recourse only after all parties named as payees in the draft have signed an agreement to deliver the draft “in escrow” to a bank acceptable to the named parties. The agreement will specify the manner in which the funds will be disbursed by the bank, as escrow agent, to the several mortgagees named in the draft. After the loss funds have been collected by the bank, it will issue cashier's checks in the manner prescribed in the escrow agreement (see exhibit A for suggested form). If this procedure is found to be impractical in an individual instance, the State Director may authorize an alternative method for disbursing the loss funds to protect the Government's financial interest. (iv) Drafts which have been endorsed by all other payees will be endorsed immediately without recourse. Such drafts or other loss funds will be processed in accordance with the methods described in paragraph (c) of this section. (e) Servicing insurance losses under special circumstances Foreclosures and voluntary conveyances. (2) Subrogation agreements. (f) Repairs and replacements. (g) Completing adjustment. (1) The County Supervisor will maintain a proper followup on all losses until satisfactory settlement has been made by the company. (2) Where the County Supervisor has evidence that the adjustment agreed to by the borrower is significantly less than the amount of damage to which the borrower is entitled under the terms of the policy, the loss draft accompanied by a report will be sent to the State Director so that he may reopen the adjustment, if he considers it is in the interest of the Agency to do so. (3) When it appears evident that the amount of the loss is $1,000 or less, the County Supervisor may rely on estimates of contractors, building supply firms, reliable carpenters, or other evidence rather than personal inspection in determining whether the adjustment is equitable and the Government's interest is protected. (h) Reinstatement after loss. (i) Losses not covered by insurance. (1) Inform the borrower that he has violated the security instrument by not providing insurance coverage and that it is his responsibility to make the needed replacements or repairs. (2) If the borrower is unable or unwilling to make needed repairs or replacements from his own resources, the County Supervisor will submit complete information to the Agency official authorized to determine whether the Agency will or will not continue with the loan. The County Supervisor's report will include recommendations on the following items: (i) The advisability and possibility of making a subsequent loan to pay for needed repairs. (ii) Subordination of the Agency real estate lien to permit the borrower to obtain funds for needed repairs from another source. (iii) The possibility of the borrower obtaining funds secured by a junior lien from another source. (iv) Whether an advance is needed to protect the Government's interest in the property. (3) If the loan will not be continued with the borrower, it must be serviced in accordance with the applicable Instructions. (4) If the borrower has improperly disposed of loss proceeds, the County Supervisor will refer the case with complete information and recommendations to the State Director. The State Director will consult the Regional Attorney when necessary and advise the County Supervisor as to appropriate servicing actions. [41 FR 34571, Aug. 16, 1976, as amended at 50 FR 39638, Sept. 30, 1985; 80 FR 9865, Feb. 24, 2015] § 1806.6 Failure of borrower to provide insurance. When a borrower fails to provide and maintain property insurance which meets the requirements set forth in § 1806.2 of this subpart, every effort will be made to have the borrower provide coverage acceptable to the Agency. It will be emphasized that under the terms of the security instrument, it is the borrower's responsibility to provide and maintain proper insurance coverage. Existing borrowers required to escrow will be notified by letter at least 90 days prior to initiating escrowing for insurance. Failure to provide insurance is a nonmonetary default and will be a consideration in determining if the loan is to be continued. For FP or SFH borrowers not (a) Expired policies. (i) The new policy will be effective as of the date of the County Supervisor's contact with the insurance agency or broker or as soon thereafter as possible, and will be for a term of one year. If State insurance regulations require a longer term, the State Director will issue a State Instruction authorizing County Supervisors to obtain policies for the minimum period permitted by State insurance regulations. (ii) The Agency will be shown in the loss payable clause and in the mortgage clause in the proper order of priority. (iii) Insurance coverage on each building usually will be the same as shown on the expired policy if it meets or exceeds Agency requirements. If the coverage shown on the expired policy does not meet Agency requirements, proper coverage will be obtained. (iv) The County Supervisor will, if possible, have an automatic renewal provision included in the policy. (v) If the borrower refuses to pay the insurance premium with his own funds or arrange with the agent for subsequent payment by premium not or otherwise, the County Supervisor will pay the amount of the insurance premium in accordance with RD Instruction 2024-A. The amount of the premium payment will be charged to the borrower's Agency account with the highest lien priority as a recoverable cost item. (vi) If the insurance agency or broker who issued the expired policy refuses to issue a new policy, the County Supervisor will have the borrower designate in writing another insurance agency or broker from whom the insurance can be obtained. (vii) After the County Supervisor and the borrower exhaust all efforts to obtain acceptable insurance, the County Supervisor will request advice from the State Office as to companies issuing acceptable policies in the State and from which the borrower might be able to obtain an acceptable policy. If the borrower still cannot obtain an acceptable policy from any such company, and the determination has been made to continue with the borrower, the County Supervisor will temporarily accept from the borrower the available insurance policy the Agency determines most nearly conforms to the requirements of § 1806.2 of this subpart. (A) In making this determination, the following deficiencies become more objectionable in the order from ( 1 5 ( 1 ( 2 ( 3 ( 4 ( 5 (B) Whenever adequate insurance becomes available, the County Supervisor will require the borrower to deliver to the County Office an acceptable insurance policy. The temporary policy will be returned to the borrower for cancellation after all losses claimed under the policy have been settled. (C) If the borrower is unable to furnish a property insurance policy of any kind, he is still responsible for the debt in the event of loss. (D) If the County Supervisor accepts an inadequate insurance policy under these conditions or the borrower fails to furnish any insurance policy, the County Supervisor will include in his report to the State Director an explanation of the efforts he and the borrower made to obtain acceptable insurance and his justification for accepting an inadequate policy, or for not obtaining an insurance policy of any kind. (b) Insurance canceled for reasons other than nonpayment of insurance premium. (2) If the borrower fails to provide acceptable insurance before the cancellation is effective, the County Supervisor will contact the insurance agency or broker who issued the insurance policy to determine the reasons for cancellation and, if possible, have the policy reinstated. (3) If the insurance company will not reinstate the policy, the County Supervisor will attempt to obtain an acceptable insurance policy from another agency or broker in accordance with the provisions of paragraph (a) of this section. (c) Insurance canceled for nonpayment of premium. (2) If the borrower does not pay or arrange to pay the premium before the policy cancellation is effective, the County Supervisor will, before the cancellation becomes effective, notify the insurance company or broker by certified mail (return receipt requested), that the Agency as mortgagee (or trustee) will pay the premium for one year to continue the policy in effect for that period. The County Supervisor will, in accordance with RD Instruction 2024-A, pay the amount of the premium for a period of one year. The amount of the premium will be charged to the borrower's loan account as a recoverable cost item. (3) If a property insurance mortgage clause other than Form RD 426-2 is used in connection with the policy and the insurance company or broker refuses to accept payment from the Agency in this manner to reinstate or continue the policy, the County Supervisor will attempt to obtain an acceptable insurance policy from another insurance company or broker in accordance with the provisions of paragraph (a) of this section. (7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 301; Sec. 10 Pub. L. 93-357, 88 Stat. 392; delegation of authority by the Secretary of Agriculture, 7 CFR 2.23; delegation of authority by the Assistant Secretary for Rural Development, 7 CFR 2.70; delegation of authority by Director OEO 29 FR 14764, 33 FR 9850) [41 FR 34571, Aug. 16, 1976, as amended at 42 FR 33263, June 30, 1977; 43 FR 34430, Aug. 4, 1978; 50 FR 39638, Sept. 30, 1985; 56 FR 6945, Feb. 21, 1991; 57 FR 36590, Aug. 14, 1992; 67 FR 78326, Dec. 24, 2002; 80 FR 9865, Feb. 24, 2015] Exhibit A to Subpart A of Part 1806—Escrow Agreement Real Property Insurance Date (Name of bank) (City or town) (State) Gentlemen: Attached is Draft No. ______, for $______, issued by the ____________ Insurance Company in payment of ______ loss which damage the buildings on the farm of __________________, of ______________ County, State of ______________. This draft has been endorsed by the undersigned payees who request that you collect these funds and issue cashier's checks to the following payees for the following amounts: ________________, First Mortgage $______ ________________, Second Mortgage $______ ________________, Third Mortgage $______ The balance only, if any, will be paid to ________________, the owner of the property. First Mortgagee Second Mortgagee Third Mortgagee Owner Subpart B—National Flood Insurance Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 40 U.S.C. 442; 42 U.S.C. 2942; 5 U.S.C. 301; delegation of authority by the Sec. of Agri., 38 FR 14944 (7 CFR 2.23); delegation of authority by the Asst. Sec. for Rural Development, 38 FR 14944, 14952 (7 CFR 2.70). Source: 39 FR 17093, May 13, 1974, unless otherwise noted. § 1806.21 General. (a) Authority. (b) Background. (c) Scope. [39 FR 17093, May 13, 1974, as amended at 69 FR 69103, Nov. 26, 2004; 72 FR 64121, Nov. 15, 2007; 80 FR 9865, Feb. 24, 2015] § 1806.22 Areas of responsibility. (a) Federal Insurance Administration FIA (2) Notify affected communities of their designations and encourage them to adopt and enforce land use and other control measures and to adopt ordinances or laws which will regulate and control construction in areas designated as having special flood or mudslide hazards. (3) Make flood insurance available at reasonable rates in sufficient amounts, within the statutory limits, to adequately protect owners against loss to their buildings and contents when those buildings are located in or will be located in designated special flood and mudslide prone areas in communities participating in the National Flood Insurance Program. (b) The Agency. (c) Community. (d) Lender. [39 FR 17093, May 13, 1974, as amended at 80 FR 9865, Feb. 24, 2015] § 1806.23 Definitions. For the purpose of this subpart, the following definitions apply: (a) Financial assistance (b) Financial assistance for acquisition or construction purposes (c) Community means (d) Eligible community (e) Designated special flood mudslide prone (f) Flood (g) Mudslide mudflow (h) Flood insurance (i) Building (j) Substantial improvement [39 FR 17093, May 13, 1974, as amended at 80 FR 9865, Feb. 24, 2015] § 1806.24 Eligibility. In addition to an applicant meeting the requirements for the type of financial assistance requested, the following requirements for eligibility of applicants for financial assistance for acquisition and construction purposes in designated special flood and mudslide prone areas must be met: (a) If flood insurance is available, to be eligible after March 1, 1974, the applicant must have purchased a flood insurance policy at the time the loan or grant is closed. (b) Applicants will not receive financial assistance in those communities that have been notified as having special flood and mudslide prone areas and where flood insurance is not available within 1 year after such notification or by July 1, 1975, whichever is later. § 1806.25 Conditions. The Agency financial assistance may be extended to eligible applicants meeting the eligibility requirements of § 1806.24 of this subpart, provided the following conditions are also met: (a) Dwelling and multi-unit housing facilities. (i) The first floor elevation of the habitable space of the dwelling or housing unit must be above the 100-year flood level. (ii) The housing must be served by public utilities and facilities, such as sewer, gas, electrical and water systems that are located and constructed to minimize or eliminate flood damage, or have an onsite water supply system and waste disposal system located so as to avoid impairment of such systems and contamination from the waste disposal system to the water supply system from flooding. (2) If the financial assistance is to build or provide substantial improvement, the requirements of paragraph (a)(1) of this section must be met and all construction must meet requirements of the applicable development standards, and: (i) A building permit must be issued by the appropriate governing officials having jurisdiction in the area and compliance must be had with the zoning code or other established legal requirements of the area for reducing or eliminating flood or mudslide damage. (ii) The structure must be designed and anchored to prevent flotation, collapse or lateral movement of the structure. (iii) Construction materials and utility equipment that are resistant to flood damage must be used. (iv) Construction methods and practices that will minimize flood damage must be followed. (3) If the financial assistance is to make minor repairs, the conditions of paragraphs (a)(1) (i) and (ii) and (2) (i), (ii) and (iii) of this section must be met or the building must have existed on the site prior to the date the area was identified as having special flood or mudslide hazards and the loan approval official must determine that the dwelling is suitable as a residence. (4) When applications for financial assistance are received in areas identified as having special flood and mudslide hazards, the loan approval official will consider the expected severity and frequency of floods and mudslides in determining whether any housing loans should be made in the area. He should be sure, if loans are made, that the objectives of the loans can be accomplished and the Government's financial interest will be adequately protected. (b) Nonresidential buildings. (c) Flood insurance coverage. (2) The contents of a building must be insured separately from a building but coverage cannot be written on the contents of a three-walled machinery shed or similar type open building. (3) 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 Secretary of HUD, who will publish a list of states with such policies. (4) It will be emphasized that under the terms of the security instrument it is the borrower's responsibility to provide and maintain proper flood insurance coverage. If flood insurance is not provided on any property for which it is required, the flood insurance premium will be paid to protect the Government's security interest. For borrowers required to escrow for flood insurance, payment of the premium will be handled in accordance with § 1806.28 of this subpart. Existing borrowers required to escrow will be notified by letter at least 90 days prior to initiating escrowing for flood insurance. If the Agency pays the flood insurance premium for borrowers not required to escrow, the cost will be charged to the borrower's account as a recoverable cost. Failure to provide flood insurance is a nonmonetary default and will be a consideration in determining if the loan is to be continued. [39 FR 17093, May 13, 1974, as amended at 52 FR 8002, Mar. 13, 1987; 56 FR 6945, Feb. 21, 1991; 80 FR 9865, Feb. 24, 2015] § 1806.26 Coverage and premium rates. Exhibit A sets forth limits of coverage and chargeable premium rates under the program. Insurance policies under the program can be obtained from any licensed property insurance agent or broker serving the eligible community or from the National Flood Insurers Association Serving Company (Serving Company) for the state. The Servicing Company for each state is shown in exhibit B. § 1806.27 Acceptable policies and servicing. The general acceptance of policies and servicing of insurance will be performed in accordance with Subpart A of this part. Any unusual situations that may arise with respect to obtaining or servicing flood insurance should be referred to the State Director. The State Director will attempt to resolve any problems concerning the flood insurance program in the state with the Servicing Company. Flood hazard boundary maps, insurance rate tables, the insurability of specific structures, and other information concerning the program may be obtained from the Servicing Company. Difficulties in administering the program which the State Director is unable to resolve should be referred to the National Office for Assistance. § 1806.28 Borrowers required to escrow. For borrowers required to use escrow accounts for the payment of real estate taxes and insurance, the flood insurance premium will be paid when due from funds contained in the escrow account. If the escrow account contains insufficient funds to pay the flood insurance premium when due, the County Supervisor will request the borrower to pay an amount equal to the difference between the premium due and the escrow balance in a lump sum within 30 days after notification. If the borrower fails to remit the amount requested, the amount will be advanced and charged to the borrower's account as a recoverable cost. The amortization period for an advance due to an escrow shortage will be one year. Amortization of the charge will be handled in accordance with7 CFR part 3550. When a borrower has more than one loan secured by the real estate on which the flood insurance premium is being paid, the advance will be charged to the initial or lowest numbered loan. [56 FR 6946, Feb. 21, 1991, as amended at 67 FR 78326, Dec. 24, 2002] Exhibit A to Subpart B of Part 1806—Coverage and Premium Rates 1. The following table sets forth the limits of coverage available under the program: Type of structure Structure coverage Contents of coverage 4 Subsidized Total 3 Subsidized Total 3 Single family, residential 1 $35,000 $70,000 $10,000 $20,000 All other, residential 1 100,000 200,000 10,000 20,000 All nonresidential 2 100,000 200,000 100,000 200,000 1 2 3 4 2. The following table sets forth the applicable premium rates: Type of structure Rates per $100 of coverage (subsidized only) Structures Contents All residential 1 $0.35 All nonresidential 1 .75 1 Exhibit B to Subpart B of Part 1806—Servicing Company The servicing company office to be contacted for information relative to the availability of coverage under the national flood insurance program, flood hazard boundary maps, insurance rate tables, and related material. E.D.S. Federal Corporation, National Flood Insurance, P.O. Box 34294, Bethesda, Md. 20034, phone toll-free 800-638-6620; commercial phone 301-898-5900. (7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 301; delegation of authority by the Secretary of Agriculture, 7 CFR 2.23; delegation of authority by the Assistant Secretary for Rural Development, 7 CFR 2.70) [43 FR 18538, May 1, 1978]