We have a loan that is for the construction of an office building. We allow borrowers to delay purchasing flood insurance until the slab is being poured. We are to that point now and the borrower is working on obtaining the flood insurance. We also filed UCCs and took contents. Does the contents flood insurance coverage need to be in place now before proceeding with further draws, or can the contents coverage be purchased later in the construction phase?

Seems pretty silly if you ask me, if this is not a construction/permanent loan. But you have now got yourself into a pickle, as there is no guidance. How are you going to make that determination? I would just tell the officer to release the UCC and deal with it when the loan goes permanent. A security instrument on imaginative collateral is worthless anyway. If the customer is going to be buying new contents to place in the building and gets a loan for it, a purchase money UCC is going to trump that blanket contents UCC anyway.

It is a construction-perm loan, sorry I didn't clarify that. I appreciate your guidance!

Filing a blanket contents UCC as an abundance of caution is fine, except when flood insurance is involved. Unless there is some reliance on the collateral value of the contents, it becomes pretty problematic as to how much coverage is required on any loan, construction loan or not. Are they going to have $100,000 or $500,000 in contents. If the loan is more than $500,000 and your building flood insurance is already maxed out - you will have to know.

The building will have the max of $500,000 and there has been a value of about $500,000 assigned to the equipment that will be in the building. Loan amount is over $1million so the max for both the building and contents are going to be needed. I do think releasing the UCC is the easiest thing, especially since the loan is not dependent on the contents.

Does the language in the Deed of Trust include a security interest in personal property? Releasing the UCC may not solve the problem.

I would 2nd that. You need to address whatever established the security interest not just the UCC filing.

It would be pretty unusual for a real estate security interest to reach equipment that was not part of the building. If the equipment is part of the building, then it is already covered under the building coverage.

We would need a little more detail regarding what we are discussing as far as equipment.