My question has to do with property in a flood zone that is leased to another company.

Bob and Sue own property A which is in a flood zone.

Loan #1 to Bob and Sue is secured by a mortgage on property A, and properly insured for flood.

Loan #2 is to Corporation A (owned by Bob and Sue) and secured by a second mortgage on Property A, also insured.

Loan #3 is to Corp A and is secured by the business assets of Company B (also owned by Bob and Sue), the assets being housed in Property A. Company B leases space at Property A.

Does Loan #3 require content coverage on the business assets? Or not, because it is not a covered loan (no real estate)?

The more general question (even in the absence of common ownership) is whether the business assets require flood insurance if owned by a party that is leasing space in a building in a flood zone?

You have to have the building and contents before content insurance is required.

rl, I know that's the simple answer. But due to common ownership, do you think an examiner could press that these loans are all to the same persons?

Common ownership aside, they are separate entities and the different entities own the land and contents separately. No one would do that simply to avoid content insurance.

Now, from a safety and soundness perspective - why would you not require it?? I'm sure you require the contents to be insured from other hazards that are, in reality, less likely to occur.

But you are safe IMHO from the flood regulations.

No argument from me on the safety and soundness side.

The ownership of the contents and/or buildings is really not a factor. If your loan is secured by a building located in a SFHA you must obtain flood insurance, regardless who the borrow is and regardless who owns the building. The same would hold true for contents if the loan secured by both the contents and the building.

Loan #3 appears to be scoured by the contents only, therefore flood insurance on the contents would not be required.