Proof of Flood Insurance - Part 1
By David Dickinson
If a loan is secured by improved real estate located in a Special Flood Hazard Area, you may not close the loan until the borrower produces proof of flood insurance. However, what does "proof" mean?
The Mandatory Purchase of Flood Insurance Guidelines indicate (page 26):
Acceptable proof of coverage may be a copy of the Flood Insurance Application and premium payment, or a copy of the Declarations Page.
The "premium payment" wording is new to the August 2007 Guidelines. Typically, bankers receive an application marked "paid" by the insurance agent. However, when the policy arrives, it may have an effective date after the loan is closed. The reason this is possible is FEMA dates the policy the same as the date of the premium check. Sometimes your borrower's insurance agent will send you the policy application information without actually receiving payment from your borrower. If the check is delivered to the insurance agent later, the FEMA policy will reflect the later date. 
It is a prudent practice to follow the FEMA Guidelines. They aren't a regulatory requirement but good suggestions.