Last June the loan balance was $2,400 and we force-placed. It is residential property. This year the customer still has not obtained a flood policy, so we are lookinbg at force-placing again. Yet, now the balance is $600. Since the deductible went up to $1,000 in October 2009 the borrower could not even get an NFIP policy for that amount if they wanted. Do we still need to force-place coverage for the next 3+ months for $600?

MarkB

If your loan amount is lower than the minimum allowed deductible, then there is no requirement. However, if the value of the property is much more than that, then the customer is doing themselves a disservice by not continuing insurance.

I have never understood a property owner ignoring flood, since it's a higher risk than fire, yet they think nothing of insurance for that hazard!

Typical, misinformed owners. They pay to keep their Fire/Hazard Insurance in place (9% chance over 30 years); but let their Flood lapse (26% chance over 30 years).

Oh well....Thanks for your input RR.

MarkB

Below is FEMA's response from "Ask the Experts" when asked the question. You'll notice that it never says there is no need to get the insurance, instead it says to exclude the building from the security interest...interesting.

"You asked whether flood insurance is necessary for a building valued at $1,000 or less with a $1,000 deductible.

FEMA publishes a booklet, Mandatory Purchase of Flood Insurance Guidelines, which is available online, http://www.fema.gov/library/viewRecord.do?id=2954. On page 29, the following is noted: “If the land has a building on it and the lender has a security interest in that building, the lender must require the purchase of flood insurance to protect its security interest.” In the situation you describe, it would seem illogical to require flood insurance. One way to avoid this situation is to explicitly exclude the building as collateral for a loan. The Federal flood insurance requirement applies to a structure in a Special Flood Hazard Area that carries a mortgage backed by a federally regulated lender or servicer. If the building is not part of a mortgage agreement, there is no Federal flood insurance requirement."

However, that's not the same situation. That's when the value of the building doesn't exceed the deductible amount.


(it was still a silly way for them to evade the question , tho! )

For $600 - release the collateral and move on.