I am relatively new to the confusing world of Compliance and I've got a flood insurance related question. Our bank has a commercial property that we bought back at foreclosure. It is in a flood plain but I was (ok, it was really Senior Management) wondering if flood insurance is still required since the bank owns it now? Also, if it is required, do the same coverage requirements still apply since the bank is the owner? Example: Property is currently covered for $260K and it recently appraised for $216K. Thank you for your insight!

From a straight compliance standpoint, flood insurance is required when a bank makes, increases, renews or extends a loan for a property that is located within a flood zone.

Since the property was aquired through foreclosure, I don't believe there is a regulatory mandate that the bank have flood insurance on the property. I may be wrong, but I'm assuming that title was transfered to the bank and the bank did not have to have a loan to "purchase" the foreclosed property.

From a Saftey and Soundness standpoint, your bank may want to elect to have flood insurance on the property that was aquired through the foreclosure process.

Finally, if your bank elects to have flood insurance on the property, you may want to look at the replacement cost of the property instead of an appraised value to determine how much flood insurance the bank should purchase.

Thank you!