Flood & Tax News- Q2 2011

NFIP Community Participation – The Basics

By participating in the National Flood Insurance Program (NFIP), communities ensure that NFIP flood insurance is available for residential and commercial buildings within its jurisdiction. To participate in the NFIP, communities are obligated to adopt and enforce FEMA ordinances designed to reduce the risk of flood damage to buildings in the community. Participation consists of two phases (1) Emergency Program and (2) Regular Program. However, once a community joins the NFIP it may be placed on probation or suspended for violating the agreement with FEMA.

The Emergency Program is the initial phase of a community’s participation in the NFIP. During this phase, FEMA may produce Flood Hazard Boundary Maps (FHBMs) showing only limited flood risk information for the community and NFIP flood insurance becomes available in limited amounts. Currently, for most Emergency Program communities (exceptions such as Alaska and Hawaii have higher limits), a maximum of $35,000 in coverage is available for residential buildings and $100,000 for non-residential buildings, significantly less than Regular Program participating communities which is $250,000 for residential and $500,000 for commercial by comparison. These higher limits of coverage are available if a community converts to the Regular Program.  (A full list of available coverage limits through the NFIP can be found on page 26 of the Mandatory Purchase of Flood Insurance Guidelines.

If a participating community fails to comply with NFIP floodplain management criteria, for example, if a community does not enforce restrictions on new construction in a Special Flood Hazard Area, the community may be placed on probation. During the probationary period, a surcharge is applied to all policies issued in the community, but otherwise there is not an impact on the availability of flood insurance. If the community demonstrates compliance with NFIP floodplain management criteria, the community can be restored to its full status. However, if a community does not take corrective action while on probation, the community may be suspended from the NFIP. A community may also face suspension if it does not officially adopt revised Flood Insurance Rate Maps within the 6 month period from FEMA’s notice to the community.  During suspension new policies or renewals of current polices cannot be issued and Federal disaster assistance is limited.  Communities that have been suspended typically take corrective measures quickly to become participating again. 

The combination of insurance protection (availability of flood insurance) and hazard mitigation (community floodplain management) are key concepts to the NFIP and by ensuring that communities participate everyone is better protected from the risk of flood.  For more information on the impact of changes to NFIP community status and how CoreLogic responds, see the question and answer in this issue’s Ask the Flood Experts.

CoreLogic Flood Services’ Employees Earn Associates in National Flood Insurance

This May, seven employees, representing various departments within CoreLogic, earned the Associate in National Flood Insurance (ANFI) designation. The ANFI program consists of a series of exams designed to test one’s knowledge of a wide range of flood insurance topics including lender compliance, policy provisions, claims handling, rating, underwriting, NFIP rules and ethics.

Congratulations to the following individuals:

• Barry Childress
• Kori Eskelin
• Sandra Herrera
• Philip Krawczyk
• Kristen Odé
• Michael Rose
• Steve Sorensen   

The ANFI program is recommended for underwriters, flood vendors and insurance and risk management professionals.  The effort expended by these individuals to prepare for and take the required exams exemplifies the commitment that our employees have to ensuring that we have the knowledge and expertise needed to meet our clients’ needs.  Additional information about the ANFI program can be found at www.aicpcu.org.

Loan Boarding and the Continuous Pursuit of Optimization

The CoreLogic tax service operations team maintains an unremitting approach to process enhancement and operational improvements. Our tax service teams are currently enhancing processes that will leverage data within our document solutions team to provide a more accurate and efficient tax set up service for our clients. In addition to improved accuracy, loan boarding times can be further improved through the integration of the available legal description data elements.

During the loan boarding phase of the servicing process, the property address and complete legal description for a loan are typically desired. Many servicers are familiar with the level of effort required to consistently procure and exchange the legal description information for loans in a given portfolio. While servicers manage this process internally, others rely on outside agencies to assist in order to avoid lengthy delays and potential errors.  Within the loan boarding group, our accelerated tax set up process (ATSU) system may suspend a loan until the legal description has been provided and matched with corresponding mortgage information. Servicers may be required to wait for either the title company to supply the legal description or for the final recorded mortgage to be returned. As an example, a title company may be required to supply a legal description within 10 days of closing. In some instances, title companies may not provide this information during this time. As a result, tax service for the loan may be delayed thereby negatively impacting risk mitigation efforts.

By incorporating the legal description information from our CoreLogic Document Solutions team, our loan boarding process completes quickly and ensures the highest data accuracy levels are used. The end result is a more expedient loan boarding process that enables greater productivity in your organization.

To learn more about CoreLogic Tax Services, be sure to visit us online.

Proposed Tax Legislation for New York

A bill in the New York legislature, NY Senate Bill 2976C with a companion bill in the Assembly A6348B, would permit property owners deficient on property taxes to authorize a third party lending institution to take the debt of the taxes and associated penalties in exchange for a transfer of the tax lien from the property owner over to the institution. The Senate Bill currently sits in the rules committee awaiting possible action upon the legislature’s return from summer recess.

The bill has gone through changes in the state’s Senate Finance Committee, including changes in the maximum allowable rate of interest that can be collected by the tax lien payor. This change, which sets the maximum at 1.5% per month, could be perceived as negative by a third party lender in that it now more clearly limits the rate of interest that can be charged regardless of the rates that could have been charged by a given taxing jurisdiction considering the various factors that might otherwise influence interest rates in that jurisdiction, such as length and amount of delinquency.

This communication is for informational purposes and is not intended to (nor does it) provide legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting an attorney.

CoreLogic Redemption Reporting

Clients tell us that it just makes sense to leverage our tax agency relationships. Our processes and expertise can help quickly and effectively clear tax delinquencies and reduce risk. Our tax redemption reporting includes:

• Exact amount to cure tax delinquencies provided– including penalties, interest and fees
• Confirmation that property has not been sold at tax sale
• Established, superior relationships with 22,000 tax agencies throughout the US
• Experienced field and outbound call center personnel who know what to ask to obtain accurate information
• Web researchers who locate information quickly when available via the Internet

Redemption reports from CoreLogic contain all applicable property tax data for each parcel searched. In addition to our dedicated redemption report department, we maintain regional service centers that can obtain redemption reports as needed. Delinquent years, bill types, penalties, interest and payee information are typically obtained as part of the service. Redemption responses include:

• Taxing authority name, address, telephone number, bill frequency and delinquency date
• Tax identification number
• Tax year
• Bill description, if known
• Status – due, delinquent or paid
• Delinquent tax years
• Base tax amount and total amount due calculated for 30 - 60 days in the future

Please contact us to take advantage of cost effective, timely and efficient Redemption Reporting Service from your tax experts at CoreLogic. For a complete list of CoreLogic Tax products and services, please visit our website.

Both Sides of Congress Taking Action on NFIP Reform as Program nears Expiration

The NFIP is set to expire on September 30, 2011. In advance of the deadline, industry groups have been calling on Congress to reauthorize the Program with thoughtful reforms, and in response Congress has introduced several bills this session which would impact the NFIP. The House of Representatives is poised to vote on H.R. 1309 which contains several reforms to the Program including a five year extension. The Senate is also taking action on its own version of NFIP Reform legislation.

The full House is expected to soon vote on H.R. 1309, the Flood Insurance Reform Act of 2011, which passed the House Financial Services Committee last month. In addition to extending the NFIP for 5 years, H.R. 1309 would (1) phase in flood insurance premium rates for newly designated SFHAs, (2) phase in actuarial rating for nonresidential and non-primary residential properties, and (3) allow the mandatory purchase requirements to be suspended for properties with elevation certificates showing the structure at least three feet above the base flood elevation.

On the Senate side, Senator Roger Wicker (R-MS) introduced S. 1091 last month which would also extend the NFIP for 5 years and phase in flood insurance rates for newly designated SFHAs. Currently referred to as the COASTAL Act of 2011 or—Consumer Option for an Alternative System To Allocate Losses Act of 2011—the bill would include an attempt to address the wind versus water issue by having the Department of Homeland Security establish a loss allocation formula for such combined losses, among other provisions. In addition, the Senate Banking Committee has recently held two hearings on NFIP reform, including one with FEMA Administrator Craig Fugate as a witness, with the thought that a more comprehensive reform bill may be forthcoming.

You can obtain more legislative news, including summaries of key points from these bills and others, at our Legislative Update page.

Q: What is a lender’s obligation when a community moves from Emergency Program participation in the National Flood Insurance Program (NFIP) to Regular Program participation, and what is CoreLogic’s response?

A: When a community moves from the Emergency Program into the Regular Program of the NFIP, the biggest change as far as lenders may be concerned is the availability of higher coverage limits (refer to NFIP Community Participation; the Basics article). For a lender requiring flood insurance pursuant to the federal mandatory purchase requirement, the availability of more coverage could mean that the lender will need to require more insurance because the minimum flood insurance purchase requirement is based on the lesser of either:

• the amount of the loan,
• the insurable value of the building on the property, or
• the maximum amount of insurance available through the NFIP.

For example, if you are holding a $100,000 loan secured by property with a single-family dwelling with a replacement cost value of $100,000 and the building is in the Special Flood Hazard Area (SFHA) and located in a community that participates in the Emergency Program, then for compliance purposes you would need to require only $35,000 in coverage as that is the lesser of the three options. But if the community subsequently converts to Regular Program participation status the higher coverage limits become available, and you would need to require more flood insurance ($100,000 total coverage in this example) based on the requirements stated above. Indeed, Freddie Mac and Fannie Mae have requirements in their seller and servicer guidelines to ensure that amounts of flood insurance increase appropriately as coverage availability increases.

CoreLogic monitors community status and notifies you for any life-of-loan determinations of changes that impact your compliance requirements. Thus, for properties in the SFHA being tracked through our life-of-loan service which are in communities that move from the Emergency to Regular phase of the program, we will send you a notice of this program change so that you can determine action needed to ensure your compliance.

Q: Tax deed sales and tax lien sales are the most common methods by which taxing authorities enforce collection on real property. Is it possible to lose a real estate parcel for non-payment of taxes, without opportunity for redemption, if that property has never gone through any tax sale process?

A: Yes, it is possible. Tax foreclosure procedures vary greatly by state, with further process variation from one tax authority to the next. In many jurisdictions, real estate parcels cannot be lost without previously going through a tax deed sale or tax lien sale process. However, in other jurisdictions there are alternate avenues through which taxing authorities foreclose on delinquent real property. One example is Community Facilities District (CFD) liens, which are directly collected by improvement districts in many states. In California—where they are commonly known as Mello Roos districts—these liens are collected on the county tax roll. In either case, CFDs frequently provide in their covenants for accelerated foreclosure on delinquent properties when the district’s overall collection falls below the level required to service its bond debt. This accelerated foreclosure process may entail a tax sale component, but in many cases is a strictly judicial process. A second example would be states that take tax deed prior to putting properties up for sale. Idaho is one state that follows this procedure; a property may or may not be redeemable at the time of sale, depending on whether or not a year has elapsed since initial deed issuance. These are just two of the many possible ways that properties can potentially be lost for non-payment of taxes, outside of a tax sale process. CoreLogic provides notification of pending tax sales, accelerated foreclosure risks, and other critical delinquency factors through our Tax Payment Status reporting and related services.

Feel free to forward this newsletter to any colleagues you think will find it informative. However, any other reproduction of, or modifications to, any part of this newsletter is strictly prohibited without the prior written consent of CoreLogic.

If you have any questions or comments regarding this newsletter, please call us at (800) 447-1772 or email us at FloodTaxNews@corelogic.com.
To learn more about CoreLogic visit us at www.corelogic.com.

CoreLogic and ParcelPoint are registered trademarks of CORELOGIC. Other brands are the property of their respective holders.