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#75183 - 04/23/03 04:35 PM Flood Ins. on Tall Commercial Building
Mconnor Offline
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Joined: Feb 2002
Posts: 65
Fitchburg, MA
We have a $900,000 commercial real estate loan in process. The commercial building is multistoried and is in a flood zone where flood insurance is required. The building less the land will obviously exceed $500,000. The question has been raised as to why we need $500,000 coverage. The building is multi storied and the argument is that the top stories will not flood. Even if the basement flooded out, all utilities were lost, and the building was gutted, the cost would not be $500,000 to repair. I say we still need $500,000 of flood insurance. Any thoughts?

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#75184 - 04/23/03 04:53 PM Re: Flood Ins. on Tall Commercial Building
Anonymous
Unregistered

If the land is worth $900,000 or more, you don't need the flood insurance. If the land is worth over $400,000, you only need the difference between the land value and the loan amount. The answer to your other question is twofold, one because it's the law and also because what if the water knocked the whole building over. Like a tidal wave or something.

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#75185 - 04/23/03 05:13 PM Re: Flood Ins. on Tall Commercial Building
Dan Persfull Online
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Quote:

If the land is worth $900,000 or more, you don't need the flood insurance.




I disagree with this:

The amount of coverage required is the LESSOR of:

The unpaid balance of the loan;
The value of the structure less the land value;
or the maximum coverage available under the plan.

A flood could do major structual damage to the building which would affect all levels. The insurance is required.

Look at page 25 of the Mandatory Purchase of Flood Insurance Guidelines. (5)Low-Value Building on High-Value Land. "....the 1994 Reform Act does not give a lender the option of enabling the borrower to avoid the purchase of flood insurance, even though the value of the land would provide more than adequate security for the amount of the loan......."
Last edited by dpersfull; 04/23/03 06:15 PM.
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#75186 - 04/23/03 05:44 PM Re: Flood Ins. on Tall Commercial Building
RR Joker Offline
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RR Joker
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The Swamp
I agree with dp...see the following example:

Appraised value - $1,000,000
less land value - 900,000
Minimum flood ins - $100,000

This will result in the lessor of the amount already listed by dp, yet dispute the fact that flood would not be required if land was worth $900,000 or more.
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#75187 - 04/23/03 07:59 PM Re: Flood Ins. on Tall Commercial Building
Andy_Z Online
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Andy_Z
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Quote:

We have a $900,000 commercial real estate loan in process. The commercial building is multistoried and is in a flood zone where flood insurance is required. The building less the land will obviously exceed $500,000. The question has been raised as to why we need $500,000 coverage. The building is multi storied and the argument is that the top stories will not flood. Even if the basement flooded out, all utilities were lost, and the building was gutted, the cost would not be $500,000 to repair. I say we still need $500,000 of flood insurance. Any thoughts?




Points to ponder on the comment about the top not flooding,
* how do the ones in the top get down if the bottom is flooded?
* if the bottom floors collapse because of rapid erosion, the top becomes the bottom and it is too late for a policy.
* remember that this coverage is not aimed at your customer or your bank, but at emergency disaster funds of the US Government.
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#75188 - 04/24/03 02:29 PM Re: Flood Ins. on Tall Commercial Building
Mconnor Offline
Member
Joined: Feb 2002
Posts: 65
Fitchburg, MA
Thank you for all your input. As I attempted to explain to my commercial officers, there is no way around requiring the mandatory coverage.

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#75189 - 04/24/03 10:02 PM Re: Flood Ins. on Tall Commercial Building
D2Xs Offline
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D2Xs
Joined: Jan 2002
Posts: 2,706
If you need examples of what can happen, find old footage of Grand Forks and Fargo, North Dakota. Many multilevel buildings were completely destroyed. Most from the fire that was started as a result of the floods and power line, etc....
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