House in a flood plain - USDA issues

[Anonymous]

Is anyone here familiar with USDA procedure regarding properties on what FEMA labels as "high risk flood plains?" It is already a given that the property we are buying is in a high-risk flood plain. The house is surrounded by an earthen dike, and no water penetrates the yard. It is only the county road that leads to the driveway that floods. But because it's in a high-risk flood plain, we have to spend and additional 3 months (according to USDA) while they determine if we can even get this house.

The procedures that my USDA loan officer listed to me were: 1) First, we need to submit a public notice in the local paper that welcomes any public input regarding a government mortgage loan on a high-risk flood plain. This has to be in the paper for 30 days. 2) Next, we need to have the land surveyed to determine the elevation of the first floor which will then determine our flood insurance. 3) We need to submit another public notice in the paper that needs to be in the paper for 15 days. 4) The USDA has to conduct an environmental impact assessment to determine if the house and the property has any impact on any major protected resources (example: wildlife habitats, water systems, wetlands, historical and archeological sites, scenic and wild rivers, etc etc etc.. ). She told me from there, she's not sure what else is involved because it's all relatively new to USDA and she needs to do some more research. She told me that after all of this, THEN they conduct the appraisal, so she said we could go through all this and then the house doesn't even appraise for enough. Or, the appraisal could be fine, but then the area director could take the public comments into consideration and completely deny us this house.

Has ANYONE ever heard of this? Because I'm considering going FHA to avoid all this crap, and all the bank lenders I've spoken with have told me that they've never heard of anything like this. What's frustrating is this house isn't new construction, it's been there for about 40 years, so I don't understand the need for the environmental impact assessment on this house. If it were new construction, I would understand. Also, the area in which we live, a majority of it is in a high-risk flood plain. It is so frustrating because even if we find another property, we're probably going to have to do this anyway.

Thanks for any input!

[BrianB_The_Loan_Professor]

I have been looking but have not seen or ever encountered anything like this

Please keep us posted so we can all be a little better informed

Is the request coming from USDA or the Bank that is doing the loan?

[ShanetheMortgageMan]

I've never had to go through anything like this either, but I found something worth noting at http://www.rurdev.usda.gov/id/GUARPage/GRH_Underwriting.pdf bottom of page 27.

FLOOD ZONES

􀀀RD must do an environmental review on each property. This is accomplished

from a review of the materials submitted in the loan package.

􀀀First floor elevation of both existing and new construction must be above 100-

year flood base elevation, no exceptions.

􀀀New construction will not be permitted in a 100-year Zone A unless there are no

alternative sites available. Consult with the local RHS office PRIOR to

processing a loan on a property located or proposed to be located in a FEMA

designated flood zone. More information about FEMA can be found at:

http://www.fema.gov/mit/

􀀀Flood insurance is required anytime the foundation of the improvements on

existing property is located in a special flood hazard area, regardless of having

the first floor above the 100 year level.

􀀀Septic tanks and drain fields are not allowed in a flood zone.

􀀀The appraisal should appropriately reflect the effect of the flood zone.

[Anonymous]

Brian B - This request is coming directly from USDA. We're doing the Direct loan program, so we don't ever interact with a bank (I believe). I'm so far into the Direct loan process that I don't want to call it off and go FHA, but I don't think USDA is going to give me this house. This house was financed a year and a half ago through USDA Guaranteed program and the seller said all they needed was proof of flood insurance, so that makes this all even more frustrating.

[Anonymous]

Thank you, Shane, for the information! I'm holding out some sort of hope that somehow the USDA lady will find that we are in some way exempt from all this in the next week, but I don't think she will. I'm afraid that whole list of things (except the bit about the new construction) will apply to us.

[BrianB_The_Loan_Professor]

that could be why none of us has heard of or experienced this direct may have different guidelines than Guaranteed.

Keep us posted

Good Luck

B

[jwb]

All you need to do is write a letter of explanation to the USDA.  It's actually very simple.  The USDA has very specific rules for lending in flood zones.  In short, they do not like to do it.  However, they CANNOT ban you from purchasing in a flood zone if you meet their basic requirements.  Have your loan officer phone his/her contact at the USDA and request, in writing, the specific requirements for purchasing in a flood zone.  Take said requirements, draft a letter addressing EVERY topic.  Then have all borrowers on the note sign the letter of explanation it in front of a notary public.  Have the notary public stamp the document and then give the original to your loan officer.  He/She can send it in to the USDA for you.  Whole process will take you 2 hours and cost you $15 / person for the notary. 

II closed 5 USDA loans in 2009-2010 in a housing development that was in a flood zone.  We did this on every single loan and it worked just fine.

Good luck!

JWB

[Anonymous]

JWB, I am going to look into that as a possibility, thank you very much for that info! The guy who is selling this house used USDA guaranteed, and he said all he needed was proof of flood insurance (which, even if it wasn't required, we would have purchased anyway). The USDA lady told me that these flood zone restrictions were just put in place after last years flooding, and that they've really cracked down on this to make it really, really hard for anyone to get a house in a flood plain. I am also going USDA direct, so I don't have a bank that I'm working through, I'm going directly through the USDA office.. I wonder if that would make a difference when writing a letter of explanation?

[IOBA]

I learn so much on here!  

[Anonymous]

I called the lady who I'm working through with USDA. I received my GFE yesterday, but she told me last week I'd have the list of repairs USDA would require by yesterday. So I call her today, and she hasn't even touched our home inspection report which was done on 11/5. She said  that she's "compiling research and documents to understand how to proceed with this" because she claims this is the first time their USDA office has ever had a house in a flood plain (she's been there I believe 10 years and it's not that uncommon for homes to be in a flood plain in this area). 

My question is.. don't you think USDA would have one set, standard procedure for a house in a flood plain? Or at least some sort of  guidelines for USDA rural development loan officers to follow? Why does she need to "compile research and documents?" Or does this make perfect sense? You can tell just by speaking with her on the phone that she has absolutely no desire to proceed any further with this house because all of the extra work that it entails for her (she has actually tried to talk us out of it), so I have a feeling she's just taking her time so that we eventually give up and go with a different house.

I'm going to speak to an FHA loan officer at US Bank today.. hopefully we can get approved for that route, because if we have to proceed with USDA I'm afraid we're going to have to pick a different house..