A bank will make a loan secured by a building located in an SFHA. What should the bank do regarding the Notice of Special Flood Hazards?
Correct Answer
B) Provide the written notice to the borrower and servicer within a reasonable time before completion of the transaction
Why this is correct: The National Flood Insurance Act requires lenders to provide a written Notice of Special Flood Hazards to the borrower and the servicer for any loan secured by a building in an SFHA. This notice must be given a reasonable time before the transaction is completed (i.e., before closing) to allow the borrower time to act. The correct choice, "Provide the written notice to the borrower and servicer within a reasonable time before completion of the transaction," states this requirement precisely. Why the other choices are wrong: "Give it only if the borrower asks" is wrong because the lender's duty to provide the notice is mandatory, not optional or dependent on a borrower request. "Wait until 45 days after closing" is wrong; the 45-day period applies to a different process (force-placing insurance if coverage lapses), not the initial notice. "Replace it with an oral statement at closing" is wrong because the notice must be in writing; an oral statement does not satisfy the legal requirement. Exam tip: Link "reasonable time before completion" with the initial flood notice. Link "45 days" with force-placing insurance after a lapse in coverage.
Why This Is the Correct Answer
Why this is correct: The National Flood Insurance Act requires lenders to provide a written Notice of Special Flood Hazards to the borrower and the servicer for any loan secured by a building in an SFHA. This notice must be given a reasonable time before the transaction is completed (i.e., before closing) to allow the borrower time to act. The correct choice, "Provide the written notice to the borrower and servicer within a reasonable time before completion of the transaction," states this requirement precisely. Why the other choices are wrong: "Give it only if the borrower asks" is wrong because the lender's duty to provide the notice is mandatory, not optional or dependent on a borrower request. "Wait until 45 days after closing" is wrong; the 45-day period applies to a different process (force-placing insurance if coverage lapses), not the initial notice. "Replace it with an oral statement at closing" is wrong because the notice must be in writing; an oral statement does not satisfy the legal requirement. Exam tip: Link "reasonable time before completion" with the initial flood notice. Link "45 days" with force-placing insurance after a lapse in coverage.
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