I'm grappling with the amount of flood coverage required on a commercial loan, and am hoping for some guidance from someone more versed in the nuances of flood. Here's the basic scenario:
One loan is secured by two properties, A and B (A is a covered property, B is not).
The outstanding loan principal is $400,000.
Property A has $210,000 of flood insurance, property B has none.
Appraised value of property A is $425,000.
My thought is that since the minimum flood coverage is the lesser of the NFIP max, the outstanding principal, or replacement cost, we should have in place at least $400,000.
I have received a counter argument that the flood insurance is sufficient, using the following calculation as its basis:
Outstanding principal of $400,000
Less land value of prop A ($140,000)
Less 78% value of prop B ($55,000) as CLTV% is 78%
Resulting amount of $205,000 is less than $210,000 flood coverage, so a sufficient amount is in place.
Perhaps I am simply dense, but does the above counter argument make sense, or is $400,000 indeed the required minimum?
Any direction and/or regulatory citations would be welcomed.