Underwriter refuses to accept private flood insurance

[Jake Recz]

Hello everybody. I haven't been active here in quite a while. I guess I got too concentrated on rehabbing a few properties I had :) Either way, I'm selling the house I currently live in and I ran into an issue that shouldn't even be an issue in the first place.

We literally flew through the whole selling process. Now we're stuck on the underwriter and obtaining a clear to close from the buyers bank. The property being sold is located in a flood zone. Insurance through FEMA was not a good deal at all so we went with a private company. The private flood insurance policy we have (transferrable to the new owner) meets ALL the same guidelines as a FEMA policy -> "This policy meets the definition of private flood insurance contained in 42 USC 4012a(b)(7) and the corresponding regulation" The issue is that the underwriter reviewing the file does not agree that this policy is the same as a FEMA policy, and refuses to issue a clear to close... Wrongfully. Per what I read in the Bigger-Waters Flood Insurance Act the underwriter has no obligation or right to turn down such a policy yet he is doing just that, while also delaying the closing. The loan in question is a conventional loan, not FHA, or VA.

I had my insurance agent attempt to contact the underwriter, but so far we had no luck. The underwriter is clearly in the wrong here. Out of desperation I told my agent that we can pay for the new buyers flood insurance through FEMA for the first year. That would push the closing through. Yet I'm not giving up just yet since, like I said, the underwriter is clearly mistaken when it comes to the denial of the current policy.

Do you guys have any other ideas on how to resolve this? Reach over the underwriters head up to higher management who may be more informed? Pay for the FEMA policy and take the loss on it? Any other ideas?

Thanks in advance. 

[Russell Brazil]

Wrongfully? No. The buyer of your property is borrowing someone elses money. The person lending that person money has the right to set the terms on issueing a loan for their money.  They have absolutely every right not to loan people money if it doesn't meet their own requirements.

Imagine you Jake were lending money to Fred to buy Rob's house. You as Jake say as a condition of me lending Fred money I require you to do X, and X could be anything here, but lets make it a credit score of 700. Freds credit score comes back at 650, so you decide thats not a risk you are willing to take with your money. Now Rob is complaining that Jake has no right and is wrongfully denying a loan to Fred. Guess what, Jake has every right to attatch conditions to his money and loan them out on those conditions, regardless of what Jake says..