The Massachusetts Division of Banks recently released Frequently Asked Questions (FAQs) to provide guidance on complying with Chapter 177 of the Acts of 2014, “An Act Further Regulating Flood Insurance” (Chapter 177). Chapter 177 was signed into law on July 23, 2014, and went into effect on November 20, 2014. It amends Massachusetts General Laws Chapter 183 by adding Section 69, which prohibits creditors and creditors' representatives (persons who have the authority to approve the terms of and modify mortgage loans or servicers who have the authority to do so) from requiring the following in a one- to four-family residential mortgage transaction:
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Flood insurance coverage in an amount greater than the balance of a residential mortgage loan
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Contents coverage
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A deductible of less than $5,000
In addition, Section 69 requires that creditors, creditors' representatives, and insurance producers provide borrowers with a notice about flood insurance coverage before it is purchased. The FAQs note that the Division of Banks will include a Model Notice to be issued to the purchaser or owner of a residential property as part of the implementing regulations that will be issued at a later date. Until the implementing regulations and the Model Notice are finalized, the FAQs provide a sample form that may be used as the flood insurance disclosure if the creditor or creditor's representative wants to send the notice as a stand-alone form.