We are making a loan to build two condo buildings in a flood zone with 8 units per building. The borrower's agent has provided a RCBAP policy for 80% of the replacement cost. Is this acceptable coverage? If our loan is for two separate buildings under construction, not for financing of the individual units, should we have coverage of $500k per building, or is the RCBAP policy appropriate?

I have sent an email to verify my understanding, but while I'm waiting for a reply I will offer the following:

It's my understanding the NFIP policy will only pay up to the policy limitation. IOWs if the replacement value of the building is $1,000,000 and the RCBAP is only 80% of replacement value the RCBAP will only pay up to $800,000 for a total loss. What are you going to do for the other $200,000?

For the coverage amount refer to the following from page 42 of the Mandatory Purchase Guide.

(3) Policy Limits

The maximum amount of building coverage that can be purchased on a high-rise or low-rise condominium under the RCBAP is the replacement cost value of the building or the total number of units in the condominium building times $250,000, whichever is less.

Therefore if my assumption is correct then the 80% coverage will not meet the minimum coverage requirements under the LAW.

Dan is correct in how the policy would pay - 80% up to the policy limit which in this case is presumably $800,000.

That would be fine if this were a finished building and you were financing an owner would could supply an owner's policy that would make up the difference by paying the assessment by the association against the owner and any required repairs of individually owned items.

In this case, you should require 100% of replacement coverage for the construction loan.

My concern, is whether an RCBAP coverage is even applicable. This is not financing of individual units, it is financing for construction of the two buildings. Is this the correct type of policy/coverage for a commercial loan to build two condominium buildings. Can a RCBAP be issued for construction financing?

Good question! Actually, an RCBAP is only for condo associations. You need a construction policy. Your building is not a condominium yet!

Is the condo association the borrower?

No the borrower is a developer. That's why I had concerns about coverage with an RCBAP. I agree that coverage should be under a standard flood coverage policy.

Yes, you need a policy that will cover the project while under construction. It should be for the full amount since you cannot rely upon assessments to/policies of individual owners to make up the difference.