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#1082262 - 11/14/08 07:12 PM Another flood question
AuditorK Offline
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Joined: Feb 2003
Posts: 962
PA
We have obtained a flood determination for a home equity loan applicant. The SFHD form states that the home is not located in a SFHA, but there is another ancillary building (shed maybe) that is located in a SFHA. The value of the home alone is well in excess of the loan amount. Do we need to require flood insurance?

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Lending Compliance
#1082339 - 11/14/08 08:17 PM Re: Another flood question AuditorK
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
All buildings securing the loan that are located in a SFHA must have flood insurance.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1082342 - 11/14/08 08:21 PM Re: Another flood question AuditorK
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Yes. You have a "covered loan". Considering your exposure is not what the flood rules are all about. You are protecting the federal government by requiring flood insurance. You must have insurance on the shed for the lesser of:
1. The loan amount,
2. The insurable value of the shed, or
3. The max from FEMA ($500,000).

You must also provide the borrowers with a notice prior to closing (rule of thumb is 10 days).
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David Dickinson
http://www.bankerscompliance.com

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#1082349 - 11/14/08 08:28 PM Re: Another flood question David Dickinson
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
Or (1) exclude the shed in the deed of trust or mortgage, (2) move the shed, or (3) tear down the shed.
Last edited by rlcarey; 11/14/08 08:43 PM.
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#1082543 - 11/15/08 01:12 AM Re: Another flood question rlcarey
Andy_Z Offline
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Andy_Z
Joined: Oct 2000
Posts: 27,748
On the Net
(3) tear it down - do so before the loan is closed or you'll have a violation. I'd also document the file, even with photos if available, that it was removed and that is why it wasn't insurable. An examiner is likely to see whatever it was saying it was a covered loan, and you'll want to immediately show why that changed.
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