Loan in flood hazard area. We are taking the building and a fixture filing as collateral. Coverage is limited to the max of $500,000 per flood rules for commercial properties. Do we need to take contents coverage as well due to the fixture filing? If so, is there a minimum/maximum for this?

If the fixtures you are taking a security interest in would be covered under the contents coverage of a NFIP policy, yes you need contents coverage. Maximum content coverage available would be the lesser of the actual cash value of the contents or $500,000.

Hello, so we also have a loan where the collateral property is in a flood zone. We also have a UCC with all inventory, equipment etc. we also have large equipment with is also located on the property. In regards to flood insurance do we just have the contents coverage as well as building for flood insurance?

thank you

You need coverage for the items that are your collateral and also are insurable under an NFIP policy. You cannot make that determination with general descriptions, such as large equipment.

I think I have a similar situation. The RCV of the improved property, a restaurant, is more than $500,000 and the loan amount is $500,000. We will be obtaining $500,000 NFIP flood insurance coverage on the building. We are also taking equipment as collateral. Does this mean we will need to obtain additional flood insurance on the equipment even though the NFIP insurance has max'd out on the structure?

If you are taking the building and equipment as collateral on a single loan, then you will need both building and content coverage. RCV is meaningless when it comes to a commercial building. You need the ACV.

Randy, thanks. Our one loan is $500,000 secured by the structure and its equipment. Since the structure’s ACV is over $500,000 and the borrower only wants to cover the loan amount, will we apportion the $500,000 flood insurance between the equipment and the structure (for example, if the value of the restaurant equipment is $10,000, would we allocate the $500,000 into, for example, $10,000 for the equipment and $490,000 for the structure)

If your requirement for flood insurance is $500,000 because that is your loan amount and the insurable value of the building and contents is more than $500,000, then it is totally up to the borrower as to how they want to insure it. You are looking for a total amount of flood insurance of $500,000, how they choose to split that up is a business decision for your borrower.

I appreciate your guidance. Thanks again!!

Well, now our total debt loan is $530,000 due to a new loan in which both loans have cross-collateral clauses. The ACV on the structure is $560,000 and the contents is $180,000, for a total of $740,000. Does this mean the most insurance we can require is $500,000, the NFIP limit, that covers both the structure and the contents together? Or, under the reg is the NFIP limit on this loan allocated at $500,000 for the structure and another $500,000 for the contents? The borrower has allocated the flood insurance at $350,000 for the structure and $300,000 for the contents.

They are eligible for $500,000 on the building and an additional $500,000 on the contents. How that is split up to meet the $530,000 loan balance is still up to the borrower.

You would not be able to count the full $300,000 contents coverage as you say that there is only $180,000 in contents.

So, the borrower currently has $350K in building coverage and $180K in contents coverage which equals $530K.

Randy, thanks. If our total loan amount(s) was, say, $1 million, would be looking at a different amount? For instance, would the maximum we would require be $500,000 on the structure plus $180,000 on the contents?

Yes, it would be since your lowest amount is then the ACV of the building (up to ($500K) plus the ACV of the collateral.

Randy, I appreciate your input. This clears up a lot for me.

Id like to tag onto this and ask this scenario. I know the RE is covered but the contents Im questioning.

Loan amount of $620,000
Collateral is:
Warehouse value of $3.3 million
Inventory value at $1.1million

Current flood coverage is:
Building $500,000
Contents $120,000

Your flood insurance amount matches your loan amount, so you are good. Otherwise, I am not sure of your question. If a single loan is secured by both the building and contents, then yes, you need contents coverage.

I appreciate the fast response. I just pulled the loan balance again and its higher than when I first pulled and started figuring. IDK why, this one was stumping me for some reason. looked at too many files I guess