We currently have a business loan on real estate in flood zone. If the customer is getting a separate loan on some new business equipment, do we need to obtain contents coverage? The loans will not be cross-collateralized.
No. Apply the same logic Dan gave. If you cross collateralize, you may very well have a loan secured by a building in a SFHA AND the contents in that building. If so, content coverage is required.
Is there an interpretation document that I can point to that will support this position? I agree that cross collateralization may change the flood insurance requirements on a collateral loan that was previously not tied to the R.E. loan, but can't find any citation to support that.
You don't need an interpretation. You can simply read §339.3(a) where it says if you have a loan that is secured by a building in a SFHA and by the contents in that building, you must have insurance on the contents. Happy also gives you a FAQ that clarifies it even more. Your loan is secured by both the building and the contents. What does it matter if it is a cross-colalterlized loan or collateral taken directly from the new loan?