We have a lender and a borrower chomping at the bit to fund on a construction loan. We have the flood policy application for the correct amount in place. The problem is that is in the builder's name, not the borrowers. We are listed appropriately in the mortgagee clause. Question, can we go ahead and fund even though the agent hasn't sent the correction to include the borrower's name? Or do we have to wait until it is corrected. Basically, we are protected but our borrower isn't. (The first draw purchases the lot.)

This is a new one for me. Here's my 2 cents worth:

1. The builder is not the borrower. The regulations require the borrower to obtain the flood insurance, or for the bank to force place the insurance if they do not. The borrower has not obtained flood insurance.

2. Have the agent file the corrective paperwork and obtain a copy showing the policy is being amended to show the proper owner of the policy.

IMO you cannot close the loan, much less fund it, until you can show the borrow has obtained flood insurance. BTW, for a new loan you cannot force place insurance in order to close the loan if the borrower refused to obtain flood insurance.

In the wake of what just happened with hurricane Katrina, now is not the time to be taking any chances, or taking short cuts with flood insurance requirements.

I totally agree. Thank you. Often, as the big bad compliance officer who seems to always be telling lenders what they can't do, it's great to get affirmation from a peer. Thanks again!

First let me say that I concur with you 100%, but am also dealing with this issue (and with a director no less). The regulation - 208.25(c) states...unless the building or mobile home and any personal property securing the loan is covered by flood insurance......... It does not state that the coverage must be provided by the borrower. In my case the agent is proposing that the borrower be named as an additional insured and the policy remain in the name of the contractor. Your thoughts please.

FLOOD DISASTER PROTECTION ACT OF 1973

FINDINGS AND DECLARATION OF PURPOSE

(b) The purpose of this Act, therefore, is to--

(4) require the purchase of flood insurance by property owners who are being assisted by Federal programs or by federally supervised, regulated, or insured agencies or institutions in the acquisition or improvement of land or facilities located or to be located in identified areas having special flood hazards.


Sorry, I inadvertently hit the sumbit button.

The builder is not the borrower, nor the property owner.