I have a loan to a gas station which has a big lot, the structure RCV is $155,000 and they also have a car wash with a RCV of $30,000. How much Flood coverage would I need. The loan is for $1,750,000. Also, if you have a policy written for both structures is there anything requiring you to have seperate policies? IF my RCV total $185,000, and in case of a flood damage FEMA will cover RCV why would I make the borrower carry %500,000. I appreciate comments on this, I'm currently battleling an issue, to me the lesser of the three amounts it's what I would need but I would like some opinions. Thank you.

This cheatsheet in the Lending section may help you.

click Here to access it, and click open when prompted.

From page 28 of the Mandatory Purchase Guidelines:

For multiple buildings, the lender must ensure that a separate flood insurance policy is provided for each building requiring coverage. The NFIP allows one policy per building.

What would you say the required amount should be? I understand it should be the lesser of the three (loan Bal./RCV/$500M).

"IF my RCV total $185,000, and in case of a flood damage FEMA will cover RCV why would I make the borrower carry %500,000."

If you are dealing with commercial properties, the figure you are looking for is RCV minus depreciation. Only condos and primary residences are based on RCV.

Randy, I understand that is how the insurance company, upon loss, will pay out...but it looks to me like that when dealing with the "lesser of's", the guides specify RCV or overall value - land (same thing if using cost sections)rather than ACV (when calculating coverage requiremeents, not insurance rules) IOW, the "compliance rules" only state RCV. The Loss Payments (insurance rules) section is where they discuss the different payouts, RCV vs ACV. And that will depend on owner occupied vs non even on residential properties.

I see nowhere that you can lessen the compliance requirement by the depreciation factor...could you please clarify where you are pulling this from (again, from a compliance standpoint)

It goes to one of the three limitation tests:

"The maximum amount of coverage available under the NFIP for the particular type of building"

You cannot insure a commercial building for RCV - you can only insure it up to ACV. If I have a commercial building with an RCV of $1,000,000, but an ACV of $200,000 - you can't make the borrower buy $500,000 of insurance when it will only pay out $200,000.

The clause that talks about the maximum amount of insurance available for that particular building type means more than just the maximum amount of insurance that could possibly be purchased (i.e. $500,000).

Hummm...just another contradiction within the guidelines once again. I wonder how many lenders take this into consideration on 1-4 residential rental properties or second homes.

bumping this back up to make sure there are no comments to the 1-4 rental/second home...that the assumption would be the same as if they were commercial properties...

Then look at this too...we have harped and harped in posts about insuring condo's to the full RCV...well wow...what if the majority are not occupied more than 80% of the preceeding 365 days!

But then...RCBAP's have their own loss settlement provisions. Hummmm...another missing link if you rely on the loss payment insurance section and not the coverage calculation (compliance) section. Oh...and too add to the maddness...special loss settlemtns apply to mobilehomes as well!

The only [i]consistency [i]is found within the calculating coverage for compliance section...which never deviates from RCV!

Something is missing here, Randy...is it just me??

I agree that there still are some inconsistencies.

However, I would suggest that you rely on page 28:

(3) Loss Payments

Lenders should seek the assistance of property insurance agents or companies when determining the appropriate flood insurance coverage amounts, as they do for other lines of insurance.

It comes down to the fact that you are not going to force someone to insure a building for more than the possible loss payment.

It still is going to come down to what form of policy is being purchased.

There are no occupancy requirements on condos that impact the insurance coverage, unless you are also requiring a dwelling policy on top of the RCBAP.

Thanks for taking another stab at this Randy...it's driving me nuts! I really don't like inconsistencies!

And right, I was referring to additional dwelling coverage on the condo's over and above the RCBAP and the implications of such depending on owner vs non-owner payout. This affects regular rental property as well...using ACV rather than RCV...this is a calculation nightmare really.

If you use the cost section on the appraisal...that's based on current costs, or RCV. Appraisal - land is market based...getting a grasp on ACV is not an easy thing to do!

Ok, I am about to look/sound very stupid, but I'm willing take that chance.

What does RCV and ACV stand for?

Replacement Cost Value and Actual Cost Value.

Replacement Cost Value is the cost to reconstruct the property in today's dollars.

Actual Cost Value is the cost to reconstruct the property in today's dollars minus depreciation.

I thought that was what RCV was but I kept using "Appraised" for the "A" in ACV and it wasn't making sense. Thank you.

Can you please direct me to the NFIP information addressing the ACV only for commercial buildings? Thanks.

"The maximum amount of coverage available under the NFIP for the particular type of building"

You cannot insure a commercial building for RCV - you can only insure it up to ACV. If I have a commercial building with an RCV of $1,000,000, but an ACV of $200,000 - you can't make the borrower buy $500,000 of insurance when it will only pay out $200,000.

Refer to Loss Payments on page 28 of the MFPIG.

What do we have to maintain in our documentation? Say we get a replacement cost value from our appraiser that we use to establish the amount of coverage we request of the borrower/agent. When the general property form comes back with the depreciated ACV coverage, is that acceptable to examiners? I'm still learning the commercial loan side. Does the policy include a breakdown or detail of how the ACV for the policy was determined? Do we trust the agents to establish this coverage amount? The MPFIG says seek the assist. of the insurance agents. But it also says the borrower's financial interest should be taken into account.

Does anyone know the answer to this?

It is the lender's responsibility to make a good faith determination of value. You don't have to use the appraiser's RCV. You can review the amount of hazard insurance, the tax assessment, the appraiser's evaluation, etc.