We have purchased a participation from another bank. We pulled a flood determination on the property and it indicated the property is in a flood zone. When we went back to the lead bank, they indicated a flood determination was not needed because the collateral is an assignment of note and mortgage.

A...I think lead bank should have done a flood
B...Who gets the flood insurance on this loan? We are not the direct contact to the borrower, but if the lead bank isn't going to do anything, I think we need to.

Any thoughts????

From this 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.''

I'm still confused, the example stated "Note", but did not mention the mortgage. In our scenario, they took both the assignment of the note and an assignment of mortgage.

This piece of property is securing the loan that we have participated in. If the borrower defaulted, I'm guessing that lead bank would want to go after the property. If it is destroyed in the flood, bye bye collateral.

If you have a security interest in the structure then it is subject to the flood rules.