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#910185 - 02/25/08 11:24 PM
Flood insurance
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100 Club
Joined: Jun 2007
Posts: 173
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I need help with a couple flood insurance-related questions. First, we have a lien on property on which there sits a cottage and a quonset hut, both located in a SFHA. The loan officer says the cottage is being sold and moved off the property, and that the metal quonset hut will be torn down. Of course, I explained that we will need flood insurance in place until the cottage is moved and the hut destroyed, but I'm struggling to determine how we do this from a practical standpoing. The loan officer says that the appraisal says the buildings have no value. The insurance agent for the customer says there is no hazard insurance on the buildings because they have no value. Even if I can get someone to come up with some dollar figure for the ACV of these buildings (and I don't know who that would be), lenders are allowed to permit deductibles between $10,000 and $50,000 for non-residential buildings, so any ACV is almost certainly going to be less than the mimimum deductible. Am I still required to have flood insurance?
Second, does the requirement to consider any first mortgage balance in the required coverage amount (when you're in second lien position) only apply to home equity (consumer) loans, or do you also need to take into consideration any first lien balance that another lender may have when you're in second position on Commercial loans?
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#910252 - 02/26/08 12:15 PM
Re: Flood insurance
VRV
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Gold Star
Joined: Apr 2003
Posts: 382
Way Out West
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The loan officer says that the appraisal says the buildings have no value. I wonder who ordered the appraisal, and did they tell the appraiser not to value the buildings? Hmmmmmm Most appraisers do not arbitrarily exclude a building from an appraisal, unless instructed to do so. Hmmmmmm Could this loan officer have put you in this quandry????
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#910390 - 02/26/08 04:02 PM
Re: Flood insurance
Clint,,,,,
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100 Club
Joined: Jun 2007
Posts: 173
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So, David, it sounds like you're saying that we would have to dictate that the deductible on the policy was less than the ACV of the buildings. Correct? What if the value of the buildings is so low (say $500) that it isn't possible to even purchase insurance with a deductible lower than that? Thanks so much for your help.
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#910412 - 02/26/08 04:18 PM
Re: Flood insurance
VRV
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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I believe what David is saying is you must establish the value before you can determine whether insurance is obtainable or not. I don't believe you can have that high a deductible on residential-type property, which the cottage should be...I believe the max is $5000 (without looking). I believe the norm is $500 and if the value is more than that...you will need insurance.
BTW, I have no idea what a Quonset Hut is! If it's roofed, floored, but not walled, it wouldn't be insurable.
Last edited by RR joker; 02/26/08 04:20 PM.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#910601 - 02/26/08 06:51 PM
Re: Flood insurance
RR Joker
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100 Club
Joined: Jun 2007
Posts: 173
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I guess the cottage would be residential, but the quonset hut would be non-residential. (A quonset hut is a prefabricated metal building that has domed walls and roof--often used in military settings.) I think the minimum deductible for residential properties is $500 and for non-residential properties is $10,000. So, if the appraiser and/or insurance agent tell us that the cottage is worth less than $500, and the quonset hut is worth less than $10,000, how do you practically obtain flood insurance coverage?
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#910628 - 02/26/08 07:09 PM
Re: Flood insurance
VRV
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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You don't...but I highly doubt your cottage RCV will be less than $500. BTW, some older buildings (pre FIRM) carry a $1000 minimum, so that may come into play with your analysis. See page 29 (4) 1st paragraph.
_________________________
My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#910978 - 02/27/08 05:54 AM
Re: Flood insurance
VRV
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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This is another example of the importance of pulling your FHD prior to ordering your appraisals. You want to ensure that if your property is in a flood zone you require the cost approach to be included in the appraisal and not allow the appraiser to invoke a departure provision on the cost approach in the appraisal.
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#913930 - 03/03/08 07:40 PM
Re: Flood insurance
rlcarey
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100 Club
Joined: Mar 2006
Posts: 245
Up North
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I thought that if the Hazard Insurance agent indicates that the structure is not insurable or has no value, that flood insurance, even though required per the flood rules, cannot be purchased through the NFIP because of the deductible issue. If there is no value, then even a $500 deductible is more and a policy can't be purchased (application would be refused by NFIP). Can you clarify?
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