January 20, 2023 - Today the LSTA published the revised LSTA Market Standards for Flood Insurance Processes in Syndicated Lending (“Flood Standards”).

By way of background, federally-regulated lending institutions are subject to the provisions of federal laws and regulations regarding flood insurance, including the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as amended (the “Flood Laws”).  The Flood Laws deal with loans secured by improved real property in the U.S. and its territories, and those laws require that lenders make a determination as to whether the structures securing a real estate secured loan facility are located in an area designated by FEMA as being subject to special flood hazards (an “SFHA”).  If a structure securing such a facility is found to lie in an SFHA of a community that participates in the National Flood Insurance Program, the Flood Laws require the lender to give notice to the borrower and ensure that adequate flood insurance coverage is in place on such structure and, if the contents of such structure are also taken as collateral, its contents. 

The Flood Laws prescribe the following “tripwires” during the term of a real estate secured loan facility, at which point the lender must ensure that flood insurance, if available, covers any improved real property located within an SFHA that secures such facility for the life of the loan: (i) when the loan is originated, (ii) when the loan is extended, increased, or renewed or (iii) when the lender becomes aware that flood insurance is required and there is none or that the existing flood insurance is insufficient.  Additionally, the Flood Laws mandate that lenders obtain certain flood documents and impose a requirement and a time frame for force placement of flood insurance (if needed).

The LSTA’s guidelines are intended to establish standard procedures for the administrative agent of a syndicated real estate secured loan facility with respect to (i) obtaining documents which evidence compliance with the Flood Laws and (ii) adequate ongoing monitoring of such compliance by the agent.  Adherence to these Market Standards by agents will provide a means for lenders to determine that the Flood Laws have been complied with before the closing of the primary syndication of those facilities (or, if relevant, in connection with the occurrence of later Tripwires) and will help ensure the smooth and timely closing of each Real Estate Secured Loan Facility.

Click here for the updated Flood Standards.

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