Our flood monitoring company is insisting that on a Condo flood policy the RCV is updated during the life of the loan (using hazard policy amounts) to determine if coverage is sufficient. I don't see anything that indicates that RCV must be updated over the life of the loan rather than at a MIRE event.

Any help or thoughts on this is appreciated. Thanks.

Whether or not to update the replacement cost on a RCBAP is up to the condo association and the insurance agent. The lender has no dog in that hunt. Why would a condo policy be any different than a policy on a house. Please tell me they are not updating replacement costs annually on dwelling policies also?

Thanks for the response Carey. The company is pointing to the 2019 rule that speaks about condos:

To comply with the Regulation, the lender must ensure that the minimum amount of flood insurance covering the condominium unit is the lesser of:
• The outstanding principal balance of the loan(s); or
• The maximum amount of insurance available under the NFIP, which is the lesser of:
o The maximum limit available for the residential condominium unit; or
o The ‘‘insurable value’’ allocated to the residential condominium unit, which is the replacement cost value of the condominium building divided by the number of units

I still don't read this to mean that you have to update RCV over the life of the loan.

The replacement cost that a lender uses as the replacement cost is reflected on the RCBAP declaration page. You do not calculate that through any other method. Now if you get a renewed RCBAP and the replacement cost on the declaration page has changed, then you might need to reassess the coverage amount to make it is still adequate. So I am at a loss as to what they are doing

Thanks Carey!

Sorry to revisit this and thanks for the previous responses. Now the monitoring company is stating they have a renewed RCBAP that they are using (this would have been helpful earlier in the conversation...). So the question is now do we have to show the coverage at 100% of the RCBAP replacement cost or can we utilize the 80% coverage that was previously allowed (this loan was made in 2016)?
Thanks again everyone!

Give us some hard information and we can try to help. What is the current replacement cost listed on the new RCBAP? How many units are there in the structure? How much insurance has been purchased? What is your loan amount?

Current RCBAP Building Replacement Cost: $861,766
Number of Units: 5
Per Unit Replacement Cost at 100% : $172,352

Coverage Total: $817,400
Per Unit Coverage: $163,480

Per Unit Replacement coverage at 80%: $137,882

Loan Date 4/2016
Loan Amount: $285,831

You are underinsured by approximately $8,875.

Allowing 80% of the RCV does not meet your regulatory requirement. The 80% coverage only eliminates a co-insurance penalty for the insured.

See CONDO AND CO-OP 5 in the proposed Q&A.

CONDO AND CO-OP 5. What action must a lender take if the RCBAP coverage is insufficient to meet the Regulation’s mandatory purchase requirements for a loan secured by an individual residential condominium unit?

If the lender determines that flood insurance coverage purchased under the RCBAP is insufficient to meet the Regulation’s mandatory purchase requirements, then the lender should request that the individual unit owner/borrower ask the condominium association to obtain additional coverage that would be sufficient to meet the Regulation’s requirements (See Q&A Condo and Co-Op 3). If the condominium association does not obtain sufficient coverage, then the lender must require the individual unit owner/borrower to purchase supplemental coverage in an amount sufficient to meet the Regulation’s flood insurance requirements.74 The amount of supplemental coverage required to be purchased by the individual unit owner would be the difference between the RCBAP’s coverage allocated to that unit and the Regulation’s mandatory flood insurance purchase requirements (See Q&A Condo and Co-Op 4).

Example: Lender makes a loan in the principal amount of $300,000 secured by a condominium unit in a 50-unit condominium building, which is located in an SFHA within a participating community, with a replacement cost value of $10 million; however, the RCBAP is at 80 percent of replacement cost value ($8 million or $160,000 per unit).
· Outstanding principal balance of loan is $300,000.
· Maximum amount of coverage available under the NFIP, which is the lesser of:
o Maximum limit available for the residential condominium unit ($250,000); or
o Insurable value of the unit based on 100 percent of the building’s replacement value ($10 million ÷ 50 = $200,000).

The lender must require the individual unit owner/borrower to purchase supplemental flood insurance coverage in the amount of $40,000 to satisfy the Regulation’s mandatory flood insurance purchase requirement of $200,000. (This is the lesser of the outstanding principal balance ($300,000), the maximum coverage available under the NFIP ($250,000), or the insurable value ($200,000).) The RCBAP fulfills only $160,000 of the Regulation’s flood insurance requirement.

While the individual unit owner’s purchase of a separate policy that provides for adequate flood insurance coverage under the Regulation will satisfy the Regulation’s mandatory flood insurance purchase requirements, the lender and the individual unit owner/borrower may still be exposed to additional risk of loss. Lenders are encouraged to apprise borrowers of this risk. For example, the NFIP Dwelling Policy provides individual unit owners with supplemental building coverage that is in excess to the RCBAP. The policies are coordinated such that the Dwelling Policy purchased by the unit owner responds to shortfalls on building coverage pertaining either to improvements owned by the insured unit owner or to assessments. However, the Dwelling Policy does not extend the RCBAP limits, nor does it enable the condominium association to fill in gaps in coverage.

Thanks Dan! Does this apply after closing when a new RCV is determined by RCBAP?

I am not Dan, but any time you determine a loan is uninsured regardless of when that occurs, then the force placement processes are required to be implemented.

What do we do with the statement from the Q&A (Question 28) as follows regarding RCV in RCBAP?

The guidance in this question and answer will apply to any loan that is made, increased, extended, or renewed after the effective date of this revised guidance. This revised guidance will not apply to any loans made prior to the effective date of this guidance until a trigger event occurs (that is, the loan is refinanced, extended, increased, or renewed) in connection with the loan. Absent a new trigger event, loans made prior to the effective date of this new guidance will be considered compliant if they complied with the Agencies’ previous guidance, which stated that an RCBAP that provided 80 percent RCV coverage was sufficient.

Are you saying this loan has been on the books since September 21, 2009 when Question 28 became effective?

Ah, that is the key...no it is not...so I think that is the answer we needed. Thanks again to everyone for helping me through this.

You guys are truly great, I appreciate everyone of you!

Question for Randy and Dan... it's been awhile... hope you gents are doing well.

So, we have a condo policy that shows two different replacement cost values for property insurance and flood insurance for the same building. The RCV is higher on the regular property insurance and is lesser on the flood. Seems odd to see two different replacement cost values for the same building. The difference makes me wonder if the figures truly reflect "replacement cost" of the building.

The flood policy in place is 100% of the replacement cost value for the building reflected in the flood policy section.

Question is, if we believe the replacement cost value provided is not adequate (just seems awfully low), can we require more flood insurance than what is already provided for which does reflect 100% replacement cost coverage? We've never really done this in 100% RCV coverage scenarios, but I'm not comfortable with the RCV value provided on the policy and the fact that they've provided two different RCV figures for two separate policies seems odd.

Thanks.

What flood insurance covers and what other hazard insurance might cover is really apples and oranges. The condo association has to at least every three years certify and provide evidence to the NFIP of current replacement cost value. I would not sweat it.

Thanks for quick the response Randy!