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#2260759 - 10/05/21 10:28 PM No building value/lot loan
dollars & sense Offline
Gold Star
Joined: Oct 2006
Posts: 325
Is there anything that would be a regulatory violation in this case: financing a lot purchase that there is a home on the property but it is really in bad shape and will be removed from the property at some point. If having a property evaluation done on land only, no value is being placed on the residence. Could you waive insurance on it if this is the case?

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#2260774 - 10/06/21 11:28 AM Re: No building value/lot loan dollars & sense
Adam Witmer Offline
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Joined: Sep 2010
Posts: 2,587
Great question. Two regulatory concerns come to mind, though they may not apply to you.

First, if you are a HMDA reporter, talk to your HMDA team as it appears there could be a "dwelling" for HMDA purposes, meaning this could be HMDA reportable. Secondly, if this is in a high-risk flood zone, you would need flood insurance in order to close the loan and cannot waive that requirement until the residence is torn down.

If you are not giving any value to the property, hazard insurance is a matter of safety and soundness with no technical regulatory requirement that I can think of. Regulation Z will depend whether an exemption (like business/commercial or agricultural purposes) applies, but I don't see enough information to make that determination.
Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.

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#2260775 - 10/06/21 11:49 AM Re: No building value/lot loan dollars & sense
Rocky P Online
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Joined: Jun 2003
Posts: 7,265
I remember one of Andy’s gems from many years ago.

If there is property with a structure in a SFHA that would fall down if you leaned on it, there are 3 choices:
1 - get flood insurance and make the loan
2 - don’t get flood insurance and don’t make the loan
3 - lean on the building before closing.
Integrity. With it, nothing else matters. Without it, nothing else matters.

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#2260868 - 10/07/21 12:38 PM Re: No building value/lot loan Rocky P
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,465
Bloomington, IN
Actually that statement came from me and I got it from Rich Slevin in one of his Flood Insurance seminars in Indianapolis some 20 years ago. I don't remember his title but at the time he was associated with the NFIP/FEMA out of their Chicago office.
The opinions expressed are mine and they are not to be taken as legal advice.

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