Can a bank require flood insurance for a property outside the Special Flood Hazard Area (SFHA)?

The correct answer indicates that banks have the discretion to require flood insurance for properties even if they are located outside the Special Flood Hazard Area (SFHA). This is significant because while federal regulations only mandate flood insurance for properties within designated flood zones, lenders may choose to impose additional requirements to mitigate their risk.

Lending institutions often evaluate the potential for flooding based on a variety of factors, including local conditions, historical data, and the property's characteristics. Therefore, if a property is in an area that has had past flooding issues or is at risk for other reasons, a bank may decide to require flood insurance regardless of the SFHA designation. This practice reflects a risk management strategy by lenders to protect their financial interests as well as the interests of the borrowers who may face unexpected flooding events.