Flood Insurance - Construction Loan

[maplemale]

What is the name of your state? Montana

I have a question as to whether or not I should sue my lending institution... I just purchased a partially finished home 2 months ago on a construction loan for $100,000. I have to spend another $100k just to finish the house, but overall it's a steal! My lending institution gave me 6 months to complete the project with mandatory inspections every month. These inspections cost $450 each. This sounded fair to me.


2 days AFTER closing I was informed by my lending institution that I was required to provide flood insurance before they would release any funds for construction. After reviewing my closing documents again, I found a line item: $20 for a "Flood Plain Determination Fee". Apparently it's a firm in Texas which looks at the FEMA maps and tells the underwriter if they should require flood insurance of the owner. Again, I was informed 2 days AFTER closing!


This has set the project back 6 weeks. The bank won’t release funds and it has taken 6 weeks to get insurance. If we were made aware of the “Flood Plain Determination” results before closing, we could have gotten insurance within 2 days. However, because we already own the house, FEMA will not rush flood insurance.


Shouldn’t my lending institution have notified me of the flood zone before closing? Especially since they charged me $20 for a flood plain determination? I also had to pay for bank inspections during the time period. I already asked them if they would extend my construction period and they said it would cost me 6k in fees!


I am in a “Class A” flood zone. It is a 100 year flood zone and it never really floods. It is fairly low on FEMA’s priority of doing further study to take it out of the class A. Also, an engineer is required to get insurance if you already own the home. Engineering firms are already booked this time of year. It cost a great deal to get the survey/study done and it took 6 weeks. I feel the bank owes me the following:


1. Refund for interest payment on the $100,000 for 6 weeks
2. Refund of the $20 determination fee
3. Refund of the $450 inspection which took place before I requested any funds
4. 1 month minimum extension to my construction period without penalty


I can come up with at least 20k in other expenses due to this screwup. Do I have a case or what? Should I sue them?

[Ozark_Sophist]

Why blame the bank for something you should have explored prior to purchasing the property?

[maplemale]

That was not my question... But I have 3 reasons. Most obvious to least obvious:

1.
I paid for THIER service ($20 flood plain determination fee). Why research something that I have paid someone else to research?

2.
Pardon my cynicism, but why would I even look into it when my house is in the middle of a field which has never flooded and the nearest river is miles away? A small river, not talking about the big muddy here. This is the middle of western Montana, not downtown New Orleans. The area's surounding my house don't flood.


3.
Even if I did know before closing, I still could not have gotten insurance within the first 6 weeks if my bank wasn't requiring it. FEMA will only rush a request if it is pending closing. Otherwise it requires an engineering study.



If the bank is required by FEMA to have insurance on a federally insured loan, shouldn't they have the insurance before being alowed to close? How can they close and then require insurance later? What if I refused to get it? They already closed so what could they possible do about it? I don't understand how this part of the process can be so unrefined. Aren't there laws concerning this to protect consumers and banks? This almost sounds like fraud on the part of my bank.

[FlyingRon]

Originally Posted by maplemale

1. Refund for interest payment on the $100,000 for 6 weeks

Huh? You certainly shouldn't have been charged this. Your bank charges you interest before the draws are made?

2. Refund of the $20 determination fee

Unlikely, but you can try fighting over $20.

3. Refund of the $450 inspection which took place before I requested any funds

The inspection was performed?

1 month minimum extension to my construction period without penalty

Most likely you can get that by asking nice.



I'm confused. What exactly is having to pay for flood insurance doing to delay your project and cause all this invented damage?

[dmiller12]

I'm confused. What exactly is having to pay for flood insurance doing to delay your project and cause all this invented damage?

If I may, I think what's happening here is the bank goofed and didn't pay attention to their flood results prior to closing. Now they're holding the funds ransome for proof of flood coverage.

I paid for THIER service ($20 flood plain determination fee). Why research something that I have paid someone else to research?

I agree with you but the banks position will be that you never inquired as to the results and therefore did not advocate for yourself.

3. Refund of the $450 inspection which took place before I requested any funds

Why did they perform an inspection so soon after closing? Was this per the draw schedule? Was any work done to the home prior to the inspection?

1 month minimum extension to my construction period without penalty

This seems like the least they could do. Run this up the chain of command until you get the asnwer you want. For all the rest, I don't think it's worth fighting. Consider it a cost of doing business and focus on the fact that you got a steal.

Or you could try suing but it costs money and there is no guarantees you'd win.

Aren't there laws concerning this to protect consumers and banks? This almost sounds like fraud on the part of my bank.

I doubt this falls into the category of fraud. The contracts you signed at closing are designed to protect the lender more than the consumer in this kind of situation. People make mistakes inluding pople who work in banks so they protect themselves by having you sign documents agreeing to correct any errors.