Skip to content
BOL Conferences
Thread Options
#1693008 - 04/26/12 06:51 PM 2 Condo Units - Adequate Coverage?
Believing... Offline
Gold Star
Joined: Apr 2012
Posts: 346
In the mountains
There are 35 condos in a complex with two different floor plans. The bank is making a loan for two units totaling $225,000. The RCBAP policy ($7,350,000) insures to 97% replacement cost--not 100%. The RCV of each unit from the appraisal is more than the portion of the RCBAP attributable to the units. We calculated the $ amount attributable based on square footage for each model. Are we applying the correct calculation in this situation? Am I correct in thinking that we are underinsured and need a Dwelling policy before we can close?

Return to Top
Flood Compliance
#1693022 - 04/26/12 07:08 PM Re: 2 Condo Units - Adequate Coverage? Believing...
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,224
Galveston, TX
The units are insurance for $210,000 apiece under the RCBAP. What does square footage of the units have to do with flood insurance?
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1693033 - 04/26/12 07:16 PM Re: 2 Condo Units - Adequate Coverage? Believing...
Believing... Offline
Gold Star
Joined: Apr 2012
Posts: 346
In the mountains
There are two models; we used the square footage of each to calculate the RCV of the units.

Return to Top
#1693037 - 04/26/12 07:19 PM Re: 2 Condo Units - Adequate Coverage? Believing...
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,224
Galveston, TX
Why? You don't replace one unit, you replace the whole complex. Have you referred the Flood Q&As or other source materials on condos. The Q&As outline the calcuation processes pretty well? I have never seen a reference to square foot in calculating condo coverage.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1693057 - 04/26/12 07:37 PM Re: 2 Condo Units - Adequate Coverage? Believing...
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
We calculated the $ amount attributable based on square footage for each model. Are we applying the correct calculation in this situation?

The maximum coverage for a condo building is the lesser of;

100% of the RCV shown on the flood insurance Dec page divided by the number of units, or

the number of units times $250,000.

If the condo association is only insured to 90% then it is possible you aren't adequately insured. There will also be co-insurance penalties to be paid by your borrower if there is ever a loss.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#1693069 - 04/26/12 07:45 PM Re: 2 Condo Units - Adequate Coverage? Believing...
Believing... Offline
Gold Star
Joined: Apr 2012
Posts: 346
In the mountains
The square footage calculation came from the insurance company since there was such a difference in the models. Yes, we've consulted Qs&As as well as the MPFIG.

Return to Top
#1693116 - 04/26/12 08:19 PM Re: 2 Condo Units - Adequate Coverage? Believing...
Believing... Offline
Gold Star
Joined: Apr 2012
Posts: 346
In the mountains
This is why the square footage of the units were considered:

Q&A - Lenders may rely on the replacement cost value and number of units on the RCBAP declaration page in determining insurable value unless they have reason to believe that such amounts clearly conflict with other available information. If there is a conflict, the lender should notify the borrower of the facts that cause the lender to believe there is a conflict. If the lender believes that the borrower is underinsured, it should require the purchase of a Dwelling Policy for supplemental coverage.
Last edited by Believing...; 04/26/12 08:20 PM.
Return to Top
#1693179 - 04/27/12 12:18 AM Re: 2 Condo Units - Adequate Coverage? Believing...
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,224
Galveston, TX
"Lenders may rely on the replacement cost value and number of units on the RCBAP declaration page in determining insurable value unless they have reason to believe that such amounts clearly conflict with other available information."

So what is wrong with the overall replacement cost value or number of units. Do you think the overall replacement cost value of the condo complex is understated or there are more units than reflected on the declaration page?

Other than that, I think you are way over thinking this one. Stick with the formula that Dan provided.

Re-reading your original post, I also noticed this statement "The RCV of each unit from the appraisal is more than the portion of the RCBAP attributable to the units." My question is how can an appraiser develop a replacement cost value for a single unit in a condo complex. I would be asking your review appraiser how this is possible.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1693432 - 04/27/12 05:17 PM Re: 2 Condo Units - Adequate Coverage? rlcarey
Believing... Offline
Gold Star
Joined: Apr 2012
Posts: 346
In the mountains
Randy,
I agree we may be over thinking it a bit, plus there's a lot of work involved in these calculations. The bank has the condo complex loan, so we have the master appraisal and the sf. of the diffent models. We've also spoken with insurance agents to determine how claims would be paid in the event of loss since the units vary in size. I think it's more of an S&S issue...

Return to Top
#1693577 - 04/27/12 08:27 PM Re: 2 Condo Units - Adequate Coverage? Believing...
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
Lets break this down a bit.

Max NFIP 250k x 35 = $8,750,000

97% RCV = $7,350,000
100% RCV = $7,570,500 (if I did the math right)

2 units total loan = $225,000 / 2 = $112,500 minimum each building.

Co-insurance penalties do not kick in until 80% LTV or less at time of loss, so you should be okay there.

You shouldn't have to require the borrowers to obtain a separate policy for the 3% each deficit, as your loan is on two units and you have sufficient insurance per unit.

As far as S&S goes...that's another story.
Last edited by RR Joker; 04/27/12 08:27 PM.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1693588 - 04/27/12 08:45 PM Re: 2 Condo Units - Adequate Coverage? Believing...
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,224
Galveston, TX
"We've also spoken with insurance agents to determine how claims would be paid in the event of loss since the units vary in size. "

Claims will be paid to the condo association based on overall damage to the complex. They will not pay based on damage to specific individual units.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1693744 - 04/30/12 02:40 PM Re: 2 Condo Units - Adequate Coverage? rlcarey
Believing... Offline
Gold Star
Joined: Apr 2012
Posts: 346
In the mountains
Thank you all for the responses. We will definitely re-think this thing!

Return to Top
#1709755 - 06/13/12 04:04 PM Re: 2 Condo Units - Adequate Coverage? Believing...
chat Offline
New Poster
Joined: Oct 2011
Posts: 10
What if there is a comment on the dec page that breaks down the amount of coverage based on the flood zone. For example, The RCV is $130,520,000 with total of 711 units. In the notes it states $21,215,900 $1K Ded VE Zone 138 Units and $109,304,100 $1K Ded X Zone 573 Units. Loan amount is $169,000. Do I need to be concerned with the breakdown of the units or can I take the total RCV ($130,520,000)and number of units(711)to determine if there is adequate coverage. Or do I use the breakdown which would require me to know where my customers unit falls? If so and my borrowers unit is in Zone VE I would be short on coverage, right?

Return to Top
#1709761 - 06/13/12 04:11 PM Re: 2 Condo Units - Adequate Coverage? Believing...
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,224
Galveston, TX
You have to find out if the property is in a special flood hazard area VE first. If it is, you divide the $21,215,900 by 138. However, it appears that the condos are 100% insured to RCV, so additional coverage would not be required unless you believe that the RCV on the policies are not accurate.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top