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#1191581 - 05/28/09 02:27 PM Flood Insurance - Partial Flood Zone
Asher1013 Offline
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Joined: Jan 2008
Posts: 25
Flood Insurance Question…

We have a commercial loan closing which will be collateralized by several dozen acres of land, and mobile home units. The flood certificate that we pulled says it is NOT in a flood zone. However, looking at the map – the lender sees that a small portion of the land is in a flood zone (AE, I believe) – and the company/borrower has certified with the state that if they put structures on that section of the property – they will raise the property line around four feet before hand.

Now as for our bank – we will be taking the land as a whole as collateral. However, we will not be taking any liens on mobile homes that may in future be put on that section of the property. The only mobile homes we would take a title on would be in the other section of the land which is not in a flood zone.

So the question stands, would we need to require proof of flood insurance in this situation? What are your thoughts on this? (One of our co-workers says she thought a bank had been fined for not obtaining the insurance, regardless of the bank not having a lien on the mobile homes when the property was split with partial flood zone in one section.)

Thank you.

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#1191699 - 05/28/09 04:11 PM Re: Flood Insurance - Partial Flood Zone Asher1013
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
You do not need to require flood insurance if none of the structures you are taking as collateral are located within the SFHA.
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#1191718 - 05/28/09 04:18 PM Re: Flood Insurance - Partial Flood Zone Asher1013
GeorgeM
Unregistered

First question, is this a single or multiple parcels?
If a single parcel (multiple acres), any time a SFHA zone code that requires flood Ins. touches any part of the parcel, the whole parcel is reported as in the SFHA of that zone code on the SFHDF. Example. AE or VE zone codes. Some SFHDF vendors disclose the possibility of improvements being in the actual zone, other vendors may make the determination for you depending on your contract agreement. In any case it is the lenders responsibility to determine the location of the eligible building(s) within the parcel.

There may be parts of the parcel that are not covered by the map line dividing the zone areas within the parcel. All NFIP eligible building(s) on the parcel that are even touched by the SFHA zone code map line require adequate Flood Ins. There are no exceptions to the flood Regs. such as, we are only securing our loan with the land values. Any improvements that meet the definition of eligible buildings and/or mobile homes that are touched by the flood AE or VE (or the like), zone code in the parcel must have adequate flood coverage. Having a lien or not on the improvements does not negate a lenders responsibility to ensure adequate flood coverage. See NFIP, MPFIG Sec. A. Intro. c. Designated Loans, pages 4-7.

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#1191889 - 05/28/09 06:02 PM Re: Flood Insurance - Partial Flood Zone Dan Persfull
Asher1013 Offline
Junior Member
Joined: Jan 2008
Posts: 25
That is what I was thinking - but the answer given below yours by GeorgeM has me wondering now. Would you take a look at it and let me know what you think?

Thank you for your time!

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#1191918 - 05/28/09 06:19 PM Re: Flood Insurance - Partial Flood Zone Asher1013
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
It's not uncommon to have a parcel of land where a portion of the property may be close to a creek, or other low lying areas, and that portion of the parcel is considered in a SFHA, but the rest of the parcel falls outside the boundary of the SFHA. As long as no part of the qualifying structures securing the loan are located within the SFHA the purchase of flood insurance is not required.

In these instances it is advisable to have a site survey showing the location of the structures.
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#2110963 - 12/15/16 04:48 PM Re: Flood Insurance - Partial Flood Zone Dan Persfull
M Cockrell Offline
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M Cockrell
Joined: Jan 2003
Posts: 1,046
Dallas, TX
Since the passage of the BWA and the rescinding of FEMA's MPFIG, is flood insurance now required for loans which the property partially resides in a SFHA, but no portion of the structure/building does?

If not, what is the regulatory site for reference?
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#2111034 - 12/15/16 07:58 PM Re: Flood Insurance - Partial Flood Zone Asher1013
rlcarey Offline
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rlcarey
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Galveston, TX
If the structure was or is not in the SFHA, flood insurance was/is not required. What does the BWA or MPFIG have to do with this?

If someone is telling you otherwise, they need to provide you a citation that says it is required. Otherwise, you are going on a wild goose chase.
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#2111089 - 12/15/16 10:11 PM Re: Flood Insurance - Partial Flood Zone rlcarey
M Cockrell Offline
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M Cockrell
Joined: Jan 2003
Posts: 1,046
Dallas, TX
EVP/Lending is telling me examiners have previously REQUIRED the bank to have insurance for properties partially located in an SFHA...even when the structure itself (based on a survey) was not. Without citation, of course. (I'm trying to determine if S&S examiners told him this. That's still pending.)

Regarding BWA: I was just wondering if I missed something that might have somehow invalidated our interpretation.

In the same vein, the MPFIG (before it was rescinded) read: "Even though a portion of real property on which a building is located may lie within an SFHA, the purchase and notice requirements do not apply unless the building itself, or some part of the building, is in the SFHA."

Just wondering if we have guidance elsewhere to support that thought.
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#2111099 - 12/15/16 10:33 PM Re: Flood Insurance - Partial Flood Zone Asher1013
rlcarey Offline
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rlcarey
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Galveston, TX
Just refer to the regulation. It doesn't say anything about property - only buildings.

Sec. 208.25 Loans in areas having special flood hazards.

(2) Scope. This section, except for paragraphs (f) and (h) of this section, applies to loans secured by buildings or mobile homes located or to be located in areas determined by the Administrator of the Federal Emergency Management Agency to have special flood hazards.
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#2111142 - 12/16/16 04:07 PM Re: Flood Insurance - Partial Flood Zone Asher1013
John Burnett Offline
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John Burnett
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Cape Cod
When a building is that close to a SFHA, a lender might easily decide to require private flood coverage. Rising rivers rarely check the flood maps to determine their limits when upstream weather and gravity conspire to cause flooding.
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#2111343 - 12/19/16 03:48 PM Re: Flood Insurance - Partial Flood Zone rlcarey
M Cockrell Offline
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M Cockrell
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Dallas, TX
Thanks, Randy.
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#2111345 - 12/19/16 03:50 PM Re: Flood Insurance - Partial Flood Zone John Burnett
M Cockrell Offline
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M Cockrell
Joined: Jan 2003
Posts: 1,046
Dallas, TX
Understood and agreed. Have made reference to this point many times to BOD, LOs, and customers, too.
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