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#2258286 - 08/17/21 02:37 PM Detached Guest House
CM-Compliance Offline
Member
Joined: Oct 2011
Posts: 58
Missouri
I have a loan in process with a detached guest house. The property has an appraised value of over $3 million. Since there are two residential buildings on the property, do I need two flood policies? And do the policies need to be for the lesser of $250,000 each or total? The guest house is valued at $163,050 in the cost approach section of the appraisal.

Thanks for any help!

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Flood Compliance
#2258287 - 08/17/21 02:40 PM Re: Detached Guest House CM-Compliance
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,294
Galveston, TX
Two policies and the guest house would need to be insured up to the actual cost value.
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#2258288 - 08/17/21 02:44 PM Re: Detached Guest House CM-Compliance
CM-Compliance Offline
Member
Joined: Oct 2011
Posts: 58
Missouri
So one policy for $250,000 on the main house and one policy for $163,050 for the guest house?

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#2258289 - 08/17/21 02:47 PM Re: Detached Guest House CM-Compliance
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,294
Galveston, TX
If the main house is a primary residence and the replacement cost value is over $250,000, that would be correct.
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#2258290 - 08/17/21 02:53 PM Re: Detached Guest House CM-Compliance
CM-Compliance Offline
Member
Joined: Oct 2011
Posts: 58
Missouri
thanks!

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#2258742 - 08/25/21 09:45 PM Re: Detached Guest House CM-Compliance
CM-Compliance Offline
Member
Joined: Oct 2011
Posts: 58
Missouri
Update on the guest house. Borrower now states that he doesn't have to get flood insurance on the guest house since he doesn't intend on using the guest house for any residential purpose and will be using the guest house as extra storage. Our compliance department has agreed to waive the flood insurance on the guest house. Not happy with this interpretation.

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#2258761 - 08/26/21 01:01 PM Re: Detached Guest House CM-Compliance
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,294
Galveston, TX
Your compliance department is leading the bank down a very bad road.

"Serve as a residence" shall be based upon the good faith determination of the member bank that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.

What the borrower actually does with it not a qualifier - I would assume that your appraisal identifies it as a guest house, which is the "intended use" of the building regardless if the current owner is just using it for storage. Hope your compliance department has a slush fund to pay the fines.
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#2258774 - 08/26/21 02:50 PM Re: Detached Guest House rlcarey
InFairness, CRCM Offline
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InFairness, CRCM
Joined: Nov 2010
Posts: 568
USA
Originally Posted by rlcarey
Your compliance department is leading the bank down a very bad road.

Agree 100%
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