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#1074321 - 10/31/08 02:32 PM Flood documentation requirement?
Ninky Offline
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Ninky
Joined: Nov 2002
Posts: 357
Existing loan on land and original building with adequate flood coverage is up for renewal. The lender discovers a new structure on the property that the borrower financed with another lender. Not our collateral, but our Deed of Trust includes the land "together with all existing or subsequently erected or affixed building, improvements and fixtures".
What are the flood requirements? Our coverage amount is still going to be adquate because the loan amount is "the lesser of", but are we required to have proof of coverage on the new added structure that he should have with the other lender? What is our obligation here? We need to be consistent on handling these scenarios, even if they are the rare exception.
Thank you.

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Lending Compliance
#1074396 - 10/31/08 03:31 PM Re: Flood documentation requirement? Ninky
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Posts: 21,277
The language in the deed of trust gives you a lien on that structure, triggering flood for your bank on that structure.

In my opinion, you do need proof of coverage and should be listed as a lien holder.

I would also have legal counsel review the original deed of trust and the subsequent loan by the other lender to determine if your bank has priority due to the pre-existing lien that covers that new structure. The answer will determine your priority and responsibilities on the flood policy.
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#1074436 - 10/31/08 03:50 PM Re: Flood documentation requirement? Kathleen O. Blanchard
Dan Persfull Online
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Dan Persfull
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Bloomington, IN
Quote:
In my opinion, you do need proof of coverage and should be listed as a lien holder.



I agree. Regardless of your lien position, you must have all eligible buildings securing your loan covered by flood insurance if they are located in a SFHA.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1074677 - 10/31/08 06:46 PM Re: Flood documentation requirement? Dan Persfull
Ninky Offline
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Ninky
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Posts: 357
Proof of coverage and listed as subordinate lien holder on the other policy for the other building? And I guess require before processing the renewal?

And what if the other lender closed w/o the required coverage or is not federally requlated? Do we require another policy on the other building for....I guess the appraised value or derive the % of coverage out of our loan amt which would be the insurable amount as the "lesser of"?

I will get with our legal counsel regarding the DOT and our position, but need to make sure I understand so far.

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#1074827 - 10/31/08 08:33 PM Re: Flood documentation requirement? Ninky
Dan Persfull Online
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Dan Persfull
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Bloomington, IN
You may not be a subordinate lien holder on the building subject to the language of your DOT.

No, you can not close the loan until all buildings in the SFHA have flood insurance. Also don't forget to provide and obtain acknowledgment of the Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance in timely manner before closing the loan.

Doesn't matter what the other lender did. You are the one processing a new loan and the requirements fall on you to make sure the proper amount of flood insurance is in place. Either through verifying the other lender has a policy in place or you obtaining one. See page 27 of the MPFIG for the minimum coverage requirements. Notice it says loan(s).
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#1074874 - 10/31/08 08:59 PM Re: Flood documentation requirement? Dan Persfull
Ninky Offline
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Ninky
Joined: Nov 2002
Posts: 357
Your are absolutely right! I have been totally blindsided by the discovery of this additional structure on the property, which our borrower failed to disclose, that I failed to recognize that this is no different than what we require on the consumer side w/ subordinate home improvement and home equity loans. Thank you so much. Good thing it's Friday!

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