We have a construction loan: land and a pre-fab log home package to be built on it in the future. However, mobile home with permanent foundation currently sits on the property. It is in a flood zone. The mobile home is not factored in the value of the collateral and will be torn down for scrap soon. Let's say the loan amount is $100,000. Appraisal value (assuming the log home improvement) is $150,000. Customer has flood insurance currently for $100,000. It appears that we would be clear to close at this point because we are covered for flood in the amount of the loan. When the mobile home is demolished, when and how would the coverage need to be changed to the new construction? I think we have confused ourselves talking through this issue. Any help is appreciated. Thanks!

They have a mobile home that is going to be scrapped currently insured for $100,000? Why?

When the log home is erected, then the amount of flood insurance is going to have to equal the insurable value of the log home or $150,000. Collateral value is irrelevant when it comes to flood insurance.