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#2242690 - 09/18/20 02:10 PM Content Coverage?
TeamComply Offline
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Property is located in a flood zone. We have an existing deed of trust filed on the property, it contains a clause on personal property. Would this required us to obtain flood insurance content coverage? Or must a separate UCC filing on the content be filed to warrant flood insurance content coverage?
Last edited by TeamComply; 09/18/20 02:11 PM.
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Flood Compliance
#2242692 - 09/18/20 02:27 PM Re: Content Coverage? TeamComply
rlcarey Online
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It is a question for your legal counsel as to what that clause in the deed will reach as far as personal property and then you have to determine if that personal property would be considered contents under an NFIP policy,

We typically include a clause in our deeds to avoid this issue: (however should the Property be located in an area designated by the Administrator of the Federal Emergency Management Agency as a special flood hazard area, the personal property secured by this Deed of Trust/Security Agreement/Financing Statement shall be limited to those items specifically covered (currently or hereafter) by Coverage A of the standard flood insurance policy issued in accordance with the National Flood Insurance Program
or under equivalent coverage similarly issued by a private insurer to satisfy the National Flood Insurance Act (as amended))
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#2242693 - 09/18/20 02:39 PM Re: Content Coverage? TeamComply
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The step of conducting the UCC filing is not the determining factor as to whether flood insurance would be required.
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#2242695 - 09/18/20 02:43 PM Re: Content Coverage? Inspector
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What "step" is the determining factor?

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#2242697 - 09/18/20 02:46 PM Re: Content Coverage? TeamComply
David Dickinson Offline
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I think what Inspector is trying to say is - if you have the collateral listed in your note or attached to it through any type of legal agreement, you have to comply with the Flood rules. Whether you file a UCC (perfect) or not, is not relevant (not a determining factor).
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#2242698 - 09/18/20 02:46 PM Re: Content Coverage? TeamComply
rlcarey Online
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The step is whether or not your current security agreement (either the deed or a UCC. if any) attaches to peroneal property that would be considered contents.
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#2242699 - 09/18/20 02:54 PM Re: Content Coverage? TeamComply
TeamComply Offline
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Thank you all for the responses. Just a couple of additional questions:

1) is there a definition of "contents" for flood insurance purposes that I could refer to?

2) and if the regular hazard insurance policy does not provide any "content" coverage - are we still required to obtain flood insurance on the "contents"?

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#2242727 - 09/18/20 05:07 PM Re: Content Coverage? TeamComply
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I don't know if there is an all inclusive list outside of looking at a specific policy but this has a breakdown of what would fall under building v personal property generally.

https://www.fema.gov/sites/default/files/202005/fema_NFIP_Summary_Coverage_aug292013.pdf

While the hazard policy might be a source in determining how much insurance would be necessary, I don't think it can be used as the single source to say whether contents insurance is necessary. A customer may elect not to have any contents coverage for hazard but you may still have to require it for flood purposes.
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#2242728 - 09/18/20 05:12 PM Re: Content Coverage? Inspector
TeamComply Offline
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Thank you. I tried using the link you provided, but it didn't work. Is there someplace else I need to look?

And what about a situation where we are financing an 1-4 family investment property (rental house) that is in a flood zone and mortgage makes reference to "personal property". The "personal property" within the this structure (rental house) is most likely owned by tenant, not the property owner. So how do you determine what, if any, content coverage is required in this type of situation???

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#2242729 - 09/18/20 05:47 PM Re: Content Coverage? TeamComply
rlcarey Online
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Download the Flood Insurance Manual - it is always handy to have and look in Chapter 2 https://www.fema.gov/flood-insurance/work-with-nfip/manuals

To answer your question, you would have to do an inventory.
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#2242740 - 09/18/20 07:30 PM Re: Content Coverage? TeamComply
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Based on the original question that started this thread, it kind of sounds like maybe you didn't intend to have this security interest. If that is the case it might be easier to release the security interest rather than trying to figure out the contents value. Just a thought since it sounds like you are having a tough time with the contents.
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#2242742 - 09/18/20 07:34 PM Re: Content Coverage? TeamComply
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"And what about a situation where we are financing an 1-4 family investment property (rental house) that is in a flood zone and mortgage makes reference to "personal property". The "personal property" within the this structure (rental house) is most likely owned by tenant, not the property owner. So how do you determine what, if any, content coverage is required in this type of situation???"

I don't have a link to the following but the FDIC Dallas Region Quarterly Newsletter- June 2014 contains a section on Contents Coverage and General Best Practices. This is part of what it includes (emphasis added):

"Some banks use standardized legal documentation for commercial mortgage loans that always takes a security interest in personal property or contents. These banks require the borrower to obtain flood insurance for contents if the conditions described above are met [that the contents are within the building and have insurable value]. Alternatively, unless it is necessary to approve the loan, other banks customize legal documents to not taka a security interest in contents. Contents coverage would not be required in this scenario, since the bank does not have a security interest in personal property. Also, in cases where personal property or contents securing a loan have negligible or no insurable value, affidavits from borrowers or insurance agents have been used to document that Coverage B insurance is not obtainable.

The valuation of personal property or contents is not always straightforward when determining how much coverage is required. The Flood Insurance Q&As from July 21, 2009, and the FDIC Press Release dated October 14, 2011, provide some guidance on this issue, as well as examples for determining insurable value. In general, personal property or contents will be considered to have sufficient amount of flood insurance coverage for regulatory purposes as long as a reasonable method of valuation is used. There is leeway for how the bank determines the valuation, but the bank should be able to document and support any valuation method used."

Hope this helps.

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#2254074 - 05/18/21 07:24 PM Re: Content Coverage? TeamComply
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Good afternoon - I'm adding to this thread to ask the outcome from the OP or anyone else who has been in similar circumstances. We are currently having a loan compliance audit by an external firm and they have found this issue with our mortgage loans (description includes personal property). Obviously our intent was not to have contents coverage on consumer residential real estate loans.

I will be doing some legwork determining which loans are within an SFHA where the deed has this clause and I was hoping an update could be provided.
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