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#2139436 - 07/25/17 05:59 PM Condo Association Confusion
Bec Offline
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Bec
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The Great White North
Applicant would like to purchase a condo. Flood determination came back as property in a flood zone. When asked for the flood insurance policy, the condo association indicates that they are not in a flood zone and that there is no such policy in existence. Do we have to fight with the condo association to clear up the discrepancy, or can we simply require our borrower to obtain their own policy? I found a handy little article that rlcarey posted from 2012, it did indicate that this could be done, I just wanted to make sure I wasn't misconstruing what the article was saying.

rlcareys link
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Flood Compliance
#2139448 - 07/25/17 06:43 PM Re: Condo Association Confusion Bec
rlcarey Online
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rlcarey
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Galveston, TX
1. Make absolutely sure that your determination is correct.
2. You don't have a fight with the condo association, only your borrower does.
3. That link really does not address this issue.
4. An individual dwelling policy is not going to do you any good - refuse the loan. If the condo is on the 15 floor, the individual policy will pay nothing while the bottom three floors might be totally destroyed - leaving the owners with the repair bills.
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#2139503 - 07/25/17 10:17 PM Re: Condo Association Confusion Bec
Bec Offline
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My apologies, totally posted the wrong article. This one has a section on residential condominiums and what flood coverage is required and it appears as though we can get the coverage on policy for the borrower?

link
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#2139505 - 07/25/17 10:27 PM Re: Condo Association Confusion Bec
Bec Offline
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Bec
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29. What action must a lender take if there is no RCBAP coverage?
Answer: If there is no RCBAP, either because the condominium association will not obtain a policy or because individual unit owners are responsible for obtaining their own insurance, then the lender must require the individual unit owner/borrower to obtain a dwelling policy in an amount sufficient to meet the requirements outlined in Question 28.
A dwelling policy is available for condominium unit owners’ purchase when there is no or inadequate RCBAP coverage. When coverage by an RCBAP is inadequate, the dwelling policy may provide individual unit owners with supplemental building coverage to the RCBAP. The RCBAP and the dwelling policy are coordinated such that the dwelling policy purchased by the unit owner responds to shortfalls on building coverage pertaining either to improvements owned by the insured unit owner or to assessments. However, the dwelling policy does not extend the RCBAP limits, nor does it enable the condominium association to fill in gaps in coverage.
Example: The lender makes a loan in the principal amount of $175,000 secured by a condominium unit in a 50-unit condominium building, which is located in an SFHA within a participating community, with a replacement cost value of $10 million; however, there is no RCBAP.
• Outstanding principal balance of loan is $175,000.
• Maximum amount of coverage available under the NFIP, which is the lesser of:
o Maximum limit available for the residential condominium unit is $250,000; or
o Insurable value of the unit based on 100 percent of the building’s replacement cost value ($10 million ÷ 50 = $200,000).
The lender must require the individual unit owner/borrower to purchase a flood insurance dwelling policy in the amount of at least $175,000, since there is no RCBAP, to satisfy the Regulation’s mandatory flood insurance requirement. (This is the lesser of the outstanding principal balance ($175,000), the maximum coverage available under the NFIP ($250,000), or the insurable value ($200,000).)
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#2139510 - 07/25/17 10:39 PM Re: Condo Association Confusion Bec
rlcarey Online
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rlcarey
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Yes - that is true - but unless the borrower has sufficient assets to just walk away and pay you - or you want to foreclose and then be stuck with the potential multiple tens of thousands of dollars of assessments to each owner if it floods to repair the rest of the building, I would not touch a loan like this with a ten foot pole. A condo on the fifteenth floor is worthless without access.

That is what I said in my previous post - not that you could not do it. But if you do, somebody better have their eyes wide open when they decide to approve the credit. The risk is just not worth it.
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#2139540 - 07/26/17 01:43 PM Re: Condo Association Confusion Bec
Bec Offline
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What if its just a side by side twindo thingamagig?
Our borrower is only purchasing one unit in the condo.

I appreciate you walking me through this rlcarey.
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#2139602 - 07/26/17 06:09 PM Re: Condo Association Confusion Bec
#Just Jay Online
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#Just Jay
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If part of a structure has been compromised by flooding, is not the whole structure compromised? Flood waters and the corresponding damage do not know to stop at the firewall.

But going back to Randy's first point, have you completed your due diligence and confirmed that part of the building is in fact in a or not in a flood zone?
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#2140525 - 08/02/17 07:08 PM Re: Condo Association Confusion Bec
Bec Offline
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Bec
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Hi all, again I have to thank you for the input. While we were having this discussion, I was performing due diligence to ensure that the property was, in fact, in a flood zone. Guess what??!! I have a flood determination that now says it is not in a flood zone!! PRoblem solved. Thanks again all smile
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