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#2174179 - 04/18/18 05:48 PM Flood Coverage for Non-residential Condo Unit
knm1872 Offline
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Registered: 02/28/18
Posts: 13
Hello
I was hoping for some advice, I'm hitting some brick walls.
We have the following scenario --
6 unit low rise non-residential condo unit building in flood zone.
Borrower owns one unit. This is a professional building housing 6 doctors offices.
Contents only coverage is available for the unit itself. Building coverage may not be purchased in the name of the unit owner.
1. what coverage amount should we require?
2. do we even have to require it?
We have called NFIP and am being left with the impression, contents only coverage is not required but available. It's up the bank to determine if it is and how much to require.
Our potential borrower has a tenant in the space and does not have any contents in the unit to insure.
I don't want us to be out of compliance by not having coverage.
Thank you for your guidance.

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Flood Compliance
#2174180 - 04/18/18 06:10 PM Re: Flood Coverage for Non-residential Condo Unit [Re: knm1872]
rlcarey Offline
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Registered: 07/16/01
Posts: 67324
Loc: Galveston, TX
You need the association's policy, just like a residential condo policy, except the policy limit is going to be $500,000 for the entire building.

Non-residential condominium buildings and their commonly owned contents may be insured in the name of the association under the General Property Form. The “non-residential” limits apply.
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#2174203 - 04/19/18 09:04 AM Re: Flood Coverage for Non-residential Condo Unit [Re: knm1872]
knm1872 Offline
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Registered: 02/28/18
Posts: 13
Thank you...

So I'm being told the there is no association and they don't have flood insurance, supposedly paid cash for the building...So I'm saying no dice on the loan request without it.

If they were to obtain it at the association/building level, our potential loan exposure for the unit itself is $400,000, Are we calculating coverage amounts the same?
Taking the lesser of -- dividing association building/contents coverage amounts by the 6 units and subtracting from our loan amount, that would be our contents only coverage amount for the unit or the max contents coverage of $500,000?

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#2174208 - 04/19/18 09:13 AM Re: Flood Coverage for Non-residential Condo Unit [Re: knm1872]
rlcarey Offline
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Registered: 07/16/01
Posts: 67324
Loc: Galveston, TX
First question is - how is it a condo without a condo association? Not possible.

Unless you are actually taking contents as collateral, which sound like you are not as the contents would belong to the tenant, content coverage would be worthless and not required.

So you a left with requiring a policy on the building for $500,000 and then deciding if that sufficiently mitigates the flood risk presented based on the strength of the borrower if the entire building becomes a total loss with only $500,000 in flood coverage.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2174218 - 04/19/18 09:33 AM Re: Flood Coverage for Non-residential Condo Unit [Re: knm1872]
knm1872 Offline
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Registered: 02/28/18
Posts: 13
Thanks again for your help.

Well our Commercial Lender feels that no insurance is needed since only a corner of the building is in a flood zone. smile
Our Loan Admin folks think the $500,000 isn't enough.

It's been asking more and more questions to go deeper. These folks just don't want to carry flood insurance. We aren't the first bank to tell them no and am sure won't be the last.
Turns out they currently have unsecured personal financing at another bank. Our bank won't do large unsecured loans like that.
We just brought on this commercial lender and his portfolio is mostly doctors/professionals.

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#2174225 - 04/19/18 09:44 AM Re: Flood Coverage for Non-residential Condo Unit [Re: knm1872]
rlcarey Offline
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Registered: 07/16/01
Posts: 67324
Loc: Galveston, TX
If you are looking for the smartest cookie in the batch, IMHO I would go with your Loan Admin folks smile
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2174255 - 04/19/18 11:02 AM Re: Flood Coverage for Non-residential Condo Unit [Re: knm1872]
Dan Persfull Offline
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Registered: 08/28/02
Posts: 45023
Loc: Bloomington, IN
^^^^ What Randy said.

I would also watch the new loan officer's portfolio very carefully. These loan officers, the ones that deal with "professional" clients, are the worst ones when it comes to compliance. The majority of them think they and their clients are above the regulations.
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#2174314 - 04/19/18 02:01 PM Re: Flood Coverage for Non-residential Condo Unit [Re: knm1872]
David Dickinson Offline
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Registered: 11/28/00
Posts: 17714
Loc: Central City, NE
Quote:
Well our Commercial Lender feels that no insurance is needed since only a corner of the building is in a flood zone. smile

As you know, this doesn't fly.

I once had a person tell me they didn't need flood insurance because the unit the borrower was purchasing was on the 3rd floor. I asked them "what happens to the 3rd floor unit when the bottom floor is washed away?" smile
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David Dickinson
http://www.bankerscompliance.com

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