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#159184 - 02/11/04 04:59 PM Flood Insurance Policies
Anonymous
Unregistered

Reged, I hope you are out there!
My problem is this. We have a commercial property that is located in a flood zone. There are two seperate structures on the property used for two different businesses. All of the property is on one deed. I know how much insurance is required. I am being told that the insurance company will not write one policy for the loan. They want to write two separeate polocies and they want me to determine how much insurance on each building. I have one appraisal, I think we should be able to break it out. We also have contents to insure. Is it ok to have two seperate polcies and are we allowed to add two sums together for the amount we need? What are your thoughts..?

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General Discussion
#159185 - 02/11/04 05:06 PM Re: Flood Insurance Policies
redsfan Offline
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redsfan
Joined: Dec 2000
Posts: 3,455
The Pennant Race
The insurance company wants to write 2 separate policies because each structure is insuranble separately. This gives you double the potential coverage.

The Q&A permits you to divide your coverage up any way you please, just so long as both buildings and each set of contents is covered, and you obtain coverage in the required amount. Here is a link to the Flood Q&A. Look at Section 2, Question 7.

Note: I changed the post to correct the link.
Last edited by pbrinker; 02/11/04 07:06 PM.
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#159186 - 02/11/04 05:10 PM Re: Flood Insurance Policies
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,030
Bloomington, IN
Each structure within a SFHA must have its own policy.

(2) Instructions for Using the SFHDF The reverse side of the SFHDF has detailed, section-by-section instructions on its use. A separate SFHDF is required on loans on adjacent properties. However, if a single property contains multiple buildings, a listing of buildings on the parcel can be attached to the SFHDF. Only one building may be insured under one NFIP policy. Each building securing a loan must be covered by a separate NFIP policy .
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The opinions expressed are mine and they are not to be taken as legal advice.

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#159187 - 02/11/04 05:21 PM Re: Flood Insurance Policies
Anonymous
Unregistered

The link to the Q&A's is not working. Is this link on Bankers Online? Thank You

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#159188 - 02/11/04 05:25 PM Re: Flood Insurance Policies
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,030
Bloomington, IN
Try this one .
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The opinions expressed are mine and they are not to be taken as legal advice.

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#159189 - 02/11/04 05:46 PM Re: Flood Insurance Policies
Anonymous
Unregistered

Thank you, that helped !

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#159190 - 02/13/04 05:05 PM Re: Flood Insurance Policies
ekorpi Offline
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ekorpi
Joined: Apr 2003
Posts: 31
To add on to your original question, what if the loan amount is $150,000 and you don't get an appraisal? Who is responsible for determining the value of the improvements? For underwriting purposes, we just take the state equalized value x 2 and get several comps to validate this. Or does the flood insurance vendor determine the value on its own? The property in question is a 4 unit apartment house (non-owner occupied). Any thoughts would be appeciated.

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#159191 - 02/21/05 06:55 PM Re: Flood Insurance Policies
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
I'm tagging on to this thread as I have a similar dilemma. The lender took 3 parcels of property as an "abundance of caution" (he highlighted this phrase throughout the file). He indicates in his memo that 1 of the properties is a vacant lot and the other 2 have buildings on them. However in looking at the security deed and title insurance it refers to the third property as being "building number xxx". I am not sure if the building has been torn down and will check with the lender; however, there are 2 flood determinations for the other 2 properties and they are both in flood zones. The total amount of the loan is $200,000. Since the loan is an ABC loan the lender does not have an appraisal in the file. I checked with the insurance agent and they indicate they only have 1 policy for $150,000 and the loan balance is now about $198,000. I don't know how much of the loan was to purchse the "vacant lot". But according to this thread the bank would have to have a separate policy for each property in the SFHA so this may be a problem. The market value of the 2 properties is less than $150,000 so could the amount of the insurance be correct, it just needs to be on 2 different policies? Just want to know how to present this to the lender so I don't get my head chewed off! Thanks so much.

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#159192 - 02/21/05 07:43 PM Re: Flood Insurance Policies
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,030
Bloomington, IN
ekorpit - you, the lender, are responsible for determining the value of the property and insuring that you have adequate coverage.

ARose - ABC does not exempt the property from the flood regulations. As I told ekorpit, you, the lender are responsible for determining the value and insuring adequate coverage. If the value of the buildings/structures are =< $150,000 then that's the maximum coverage you will need, however each building in a SFHA must be insured for the lessor of its insurable value or the O/S loan balance.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#159193 - 02/21/05 08:19 PM Re: Flood Insurance Policies
redsfan Offline
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redsfan
Joined: Dec 2000
Posts: 3,455
The Pennant Race
Arose, you need to remember the purpose of the NFIP as designed by FEMA and Congress. It is not to protect the borrower, and it is not to protect the bank. The sole purpose of NFIP is to protect the federal government from paying out disaster recovery relief claims.

Given that, it is no wonder that the statute and the rules don't care WHY you took the property as collateral, only IF you did. The rules ignore "abundance of caution" because that has nothing to do with the purpose of the program.

As Dan notes, you as the lender are required to determine the value of the properties and get the coverage. Period.

Maybe this explanation will help your lender to understand why.
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The opinions expressed here are personal and do not represent opinions of my employer.

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#159194 - 02/22/05 02:08 PM Re: Flood Insurance Policies
Anonymous
Unregistered

ARose here - forgot to log in. Thank you both but what I am trying to be sure I understand is 1) a separate policy is required for each structure in the SFHA; and 2) if the value of the properties is less than $150,000 (which is the amount of the current flood policy), but the loan balance is $198,000, is $150,000 sufficient coverage or would it need to be for the remaining loan balance? This part seems to confuse me - the rules don't appear to specifically mention value of property (unless I overlooked it) but only refers to balance of loan or maximum coverage under NFIP.

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#159195 - 02/22/05 09:46 PM Re: Flood Insurance Policies
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,030
Bloomington, IN
If the value of the 2 buildings are $150,000 then a total of $150,000 coverage is all you need, however each building within the SFHA must be insured. You can insure each for $75,000, 1 for $100,000 and 1 for $50,000 or any other combination as long as each is insured.

Look at page 23 of the Mandatory Purchase of Flood Insurance Guidelines for Calculating Coverage. You'll find the following:

The NFIP policy does not provide coverage for losses to unimproved real estate, i.e., raw land. The lending regulations provide that, in addition to the statutorily prescribed dollar limits, flood insurance coverage under the NFIP is limited to the overall value of the building. Accordingly, a lender must evaluate the amount of coverage required in relation to the portion of the loan that is associated with the improved real estate (excluding the appraised value of the land), or the maximum amount of insurance available under the NFIP, whichever is less.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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