On March 13, 2025, amendments to the New York Real Property Law regarding flood insurance requirements for residential mortgages will take effect. These changes introduce new limits on required flood insurance coverage and mandate enhanced disclosures for borrowers. Financial institutions operating in New York must take proactive steps to ensure compliance and update their policies accordingly.
Key Changes to Flood Insurance Requirements
1. Limits on Flood Insurance Coverage
Under the new law, lenders will be prohibited from requiring borrowers to obtain flood insurance that:
- Covers personal property contents.
- Exceeds the lesser of:
- The replacement value of the collateral property.
- The outstanding principal mortgage balance at the start of the policy year.
This change aims to prevent over-insurance and ensure that borrowers are not forced to purchase coverage beyond what is necessary to protect their home or investment.
2. Enhanced Borrower Disclosure Requirement
Lenders must now provide a “clear and conspicuous” notice when flood insurance is required, which includes the following statement:
“The flood insurance we are requiring you to purchase may not be sufficient to pay for many needed repairs after a flood and may not compensate you for your losses in the property due to the flood. If you wish to protect your home or investment, you may wish to purchase more flood insurance than the amount we are requiring you to buy.”
This disclosure ensures borrowers understand the potential limitations of the required flood insurance and encourages them to evaluate their risk exposure and consider additional coverage options.
Action Items for Financial Institutions
With the effective date approaching, New York financial institutions should take the following steps to prepare:
1. Update Internal Policies and Procedures
- Review and revise lending policies to align with the new flood insurance requirements.
- Ensure compliance teams are aware of the changes and implement necessary adjustments.
2. Provide Training to Lending Staff
- Educate loan officers and underwriting teams on the new insurance coverage limits.
- Train staff on the new disclosure requirements to ensure proper borrower communication.
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3. Revise Loan Disclosures and Documentation
- Update loan documentation to reflect the new flood insurance disclosure language.
- Ensure that all borrower communications are clear, compliant, and consistent with the updated law.
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By taking these proactive steps, financial institutions can ensure compliance with the new law while continuing to provide borrowers with clear and transparent information regarding flood insurance requirements.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation. For more details on the legislative changes, you can review the full bill here: New York Senate Bill S2670.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
