We started working with remodeling/investor deals that take SFR and rehabs them. Our borrower lends the funds, and then we carry a note for them under a GLOC. We are not listed on the deed, our collateral is not the SFR, but it is in a flood zone. We don't need to collect proof of flood insurance in this case, correct? Should we even bother with a determination? Our borrower orders their own determination & appraisal before they make the loan to their customer. I'm probably overthinking this but it seems wrong to know its in a flood zone, but not collect the info. Its a new product for our bank so I want to be sure I set this up properly. Thanks!

If you are only taking an assignment of the notes and not an assignment of both the notes and deeds of trust as your collateral, then the loan is not secured by improved real property. It is only secured by notes receivable.

Thank you!

If you're looking for a source (although "Randy said..." should be enough for any examiner )

Federal Register / Vol. 62, No. 141 / Wednesday, July 23, 1997, Pg 39525, Interagency Q&A

8. If a borrower offers a note on a
single family dwelling as collateral for
a personal loan but the lender does not
take a security interest in the dwelling
itself, is this a ‘‘designated loan’’?
Answer: No. A designated loan is a
loan secured by a building or mobile
home. In this example, the lender did
not take a security interest in the
building, therefore, the loan is not a
‘‘designated loan."

If you have the deed of trust as well, you will as designated loans mean "a loan secured by a building or mobile home that is located or to be located in a special flood hazard area in which flood insurance is available under the Act."

If it is in a SFHA from a safety and soundness point the bank may consider (or should have) requiring some coverage.

Or from the new Q&A:

OTHER SECURITY INTERESTS 11. If a borrower offers a note on a single-family dwelling as collateral for a loan but the lender does not take a security interest in the dwelling itself, is this a designated loan that requires flood insurance?

No. A designated loan is a loan secured by a building or mobile home that is located or to be located in an SFHA in which flood insurance is available under the Act.113 In this example, the lender did not take a security interest in the building; therefore, the loan is not a designated loan.

Your's is good, but I like the historical vale of the answer as well.

Thank you for the back up info!