Our customer is purchasing a lot that is in flood zone. Customer later states that he is using his own money to build on lot. De we require flood insurance? If so, at what point do we require it?

Thank you.

Once you find out that that your security interest includes a building.

Just to have something to point regulation wise, would this be similar to deferring the purchase of insurance until a slab is poured as is allowed?

A borrower statement of their future plans is about like someone telling you they plan to win the lottery tomorrow. Might happen - might not. However, once you determine that a building has been located on a piece of property that you hold as security you now have knowledge that it is a designated loan. You would have to take appropriate action at that time. Again, it comes down to knowledge of the actual event. The basis for this can be found in:

208.25(g) Force placement of flood insurance— (1) Notice and purchase of coverage. If a member bank, or a servicer acting on behalf of the bank, determines at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under paragraph (c) of this section, then the member bank or its servicer shall notify the borrower that the borrower should obtain flood insurance, at the borrower's expense, in an amount at least equal to the amount required under paragraph (c) of this section, for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification, then the member bank or its servicer shall purchase insurance on the borrower's behalf. The member bank or its servicer may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance, including premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount.

Besides just happening to drive by the lot and see a home being built there (or one that's completed), how might you learn that there is a building on the property? Assuming that the owner obtains hazard insurance, the policy should name the bank as mortgagee and you should receive a copy of the policy or evidence of the policy.

Bringing this up again. So we wouldn't require insurance until we have knowledge of the structure actually being on the property and then would require what the Hazard Policy states since we will not have a Cost Estimate from an appraisal available. Am I understanding this correctly?

Yes