We have an existing unsecured loan that we are going to secure with an abundance of caution deed of trust. One of the 2 properties is in a SFHA. Does it matter that there is NO new money being given or is flood insurance required regardless, since it's not the "stated exception"- less than $5m for less than a year?

No. You must have the insurance in place prior to adding the collateral to the note - and have the notice signed. The amount of insurance will be the same as any other loan - the lesser of (1) the loan amount; (2) value of the improvements; or (3) the maximum available.

That's what I thought! Thanks very much!! :-)

Now a loan officer says since we have a priority lien on the property which secures a different note, that the flood policy we have for that loan would cover this loan as well. (???)
Shouldn't we have a separate flood policy for each loan?

You would not need separate policies for each loan on the same property. You do however have to be sure the policy limits meet the minimum coverage requirements which is the lesser of the outstanding loan balances, insurable value of the property or the maximum available through the NFIP.

So then if I do the calculation and we are at the maximum on the current secured note, we basically would have no coverage then for the subsequent lien's note?
Are we fine just making a copy of the policy for the priority note and placing it in this file then? Should we notify the insurer to add the additional loan number?

Sorry- I'm trying to cover all my questions!

To my knowledge, there is no requirement for a loan number to be attached to a policy. If you have the maximum coverage, and do not require additional insurance per your bank's policy...then you have all you can get through the NFIP and are covered...by law.

I agree with RRJ.

So then if I do the calculation and we are at the maximum on the current secured note, we basically would have no coverage then for the subsequent lien's note?

The policy insures the property, not the loan. If you have the minimum required coverage then you are compliant with the law regardless how many loans are tied to the property.

Are we fine just making a copy of the policy for the priority note and placing it in this file then?

Yes.

Should we notify the insurer to add the additional loan number?

No. As stated earlier the policy insures the property, not the loan.

Thanks to you all!!
My department has been conditioned to always request a flood policy for EVERY loan, even if the property already secures an earlier issued loan.
It is going to be hard to retrain my brain to look at the current flood policy and simply verify that we are at the maximum coverage and make a copy of it (and I won't forget to re-disclose the Notice to Borrower :-) )

You do have to still deliver the notice to the borrower of special flood hazard areas. That has to be delivered any time you make, extended, renew. etc. a loan.