Scenario: Borrowers are building a new home. The property they will build on has several old out buildings. The far west building is showing in the flood zone. The borrowers are tearing down all the buildings on this property prior to construction, and the new property will be built on the part of the land that is not in the flood zone.
Question: Do they have to tear down the buildings BEFORE the loan closes so we don't have to get flood insurance on the one building in a flood zone? Or can the the loan close without flood insurance because we will document the loan file that the buildings are being torn down before construction of the new home begins (after closing)?

Yes - if you close and there is one building within an SFHA you must have insurance prior to closing the loan. Suggest the building be torn down before you close the loan - or leave it off of your mortgage.

Talk to your attorney. You may be able to exempt the buildings from your lien so you are lending on land only.

You will probably have to refinance the construction loan lien (not modify the lien).

Al