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#2216653 - 06/27/19 06:50 PM Neighbor's Restroom Came Back on Survey - Flood?
jsim913 Offline
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Joined: Feb 2019
Posts: 45
Commercial property near a lake. We were told it was a vacant lot but when we reviewed the survey, it turns out the neighbors built part of a restroom facility on our borrower's property. Is our borrower now responsible for flood insurance? Is there any out for them on this? Would some kind of affidavit stating that the borrow doesn't own the structure work? Has anyone come across this before?

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Flood Compliance
#2216656 - 06/27/19 07:07 PM Re: Neighbor's Restroom Came Back on Survey - Flood? jsim913
David Dickinson Offline
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David Dickinson
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Central City, NE
What a mess. I've never heard of this so I'm shooting from the hip.

First, I think the title company / legal expertise needs to get involved. Where is the property line? Who owns the restroom facility that is partly on your borrower's property? Etc. etc. I think all of that needs to get cleared up before you can move forward. If it can't, I think you must require flood insurance as you have improved real estate in a SFHA (I assume you do - you never really said that).

Just curious: Is this a purchase or does your borrower already own the "bare" lot?
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#2216660 - 06/27/19 07:17 PM Re: Neighbor's Restroom Came Back on Survey - Flood? jsim913
jsim913 Offline
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Posts: 45
Going to reach out to the title co. According to the survey, the property line runs through the middle of the structure which is owned by the business next door.

Sorry, yes, it's in an SFHA. The borrower owns the property already, it's being pledged as collateral.

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#2216695 - 06/27/19 10:54 PM Re: Neighbor's Restroom Came Back on Survey - Flood? jsim913
rlcarey Online
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rlcarey
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Galveston, TX
You have bigger problems than flood insurance on this loan if you are moving forward with basically worthless collateral until the title issues are cleared.
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#2216700 - 06/28/19 12:54 AM Re: Neighbor's Restroom Came Back on Survey - Flood? jsim913
J Van Horn Offline
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Joined: Sep 2012
Posts: 25
Coppell, Texas
Agree this is a mess on multiple levels, but just wanted to spitball for a minute on JUST the "flood insurance" aspect...

Angle 1: Doesn't the option exist where the bank refiles their lien to exclude this building from security interest? (i.e.replace the standard "land and any improvements on it" language with a carve out for portion of this building on the land)

I know the rules speak of loans secured by "improved real estate", but seems like others have found this loophole of releasing security interest in random buildings found on what was thought to be "vacant land" as a way to avoid triggering requirements under RESPA??? If it works for RESPA (does it? I don't really know...), wouldn't it work to document exception for mandatory purchase, too?

Angle 2: The borrower cannot buy insurance on this building from the NFIP (as NFIP only sells Flood coverage to the owner of the structure). The Act specifically states MP applies only to structures/property that are eligible for coverage through the NFIP. Could the lender document that coverage is not available to the borrower in order to exclude from mandatory purchase?

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#2216703 - 06/28/19 09:30 AM Re: Neighbor's Restroom Came Back on Survey - Flood? jsim913
rlcarey Online
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rlcarey
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Galveston, TX
You could write the security interest to exclude that structure, but it still does not solve the problem on having worthless collateral.
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#2216715 - 06/28/19 01:58 PM Re: Neighbor's Restroom Came Back on Survey - Flood? J Van Horn
jsim913 Offline
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Joined: Feb 2019
Posts: 45
J Van Horn,
1) Yes, we were reviewing this option yesterday afternoon from the FAQ. The building isn't factored into the appraisal, however, at this point I also doubt they took into any adverse affect that having half of the neighbor's outhouse on the property might have.

2) That's a good point, he probably can't insure it even if he wanted to (he doesn't, he jokingly indicated he would bulldoze the half of a building before buying flood insurance on it).

Everything is on hold though until this is sorted out. Still waiting to hear back from the title co. Our borrow has a good relationship with the neighbor so the structure will get sorted out one way or another before we proceed. I appreciate the input!

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#2216718 - 06/28/19 02:19 PM Re: Neighbor's Restroom Came Back on Survey - Flood? jsim913
jsim913 Offline
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Joined: Feb 2019
Posts: 45
Our borrower actually came back as zone X (neighbor's property is SFHA). I had been under the impression that our borrower was also in SFHA. Still need to sort out the rest of the property issue though.

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#2216753 - 06/28/19 08:55 PM Re: Neighbor's Restroom Came Back on Survey - Flood? jsim913
rlcarey Online
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rlcarey
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Galveston, TX
It any part of the the restroom facility touches the SFHA then you still have a flood problem.
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