Primary Residence...Or Not - what to do

Just received a timely Renewal Declaration for a customer who owns a duplex. The renewal states that this is the insured's principal residence. We have not received a change of address, tax returns show rental income from the duplex and the account officer states the borrower still resides at the mailing address (and has for 20+ years) that is shown on the dec page. The agent is probably trying to minimize the premium increase, but the question at the end of the day is - will the property/borrower be covered in the event of a loss???

That is a great question. I am not an attorney nor an insurance expert but this is what my gut feeling, thought is on this. If they truly are not living at the duplex but their insurance policy indicates they are they really need to have that corrected with the insurance company. If there was a claim and the insurance company found out that the property wasn't owner occupied and was a rental property there could be some fraud concern that may impact payment to both the borrower and bank if the bank was aware of this.

I don't think you have a dog in the hunt. The only difference would be that FEMA would pay ACV rather than RCV on a claim. Do you have enough insurance for the bank to comply?

Anything else is a safety and soundness issue and not a flood regulatory issue.

According to Attachment A of the December 16,2013 FEMA memo Section 100205 of Biggert Waters required FEMA to phase out Pre-FIRM subsidized rates for non primary residences.

Effective 6/1/14 the NFIP will implement this provision by defining primary residence to be a building that will be lived in by the insured or the insured's spouse for more than 50% of the 365 days following the policy effective date.

To be eligible for RCV under the SFIP, the dwelling must be the insured's principal residence (ie. the insured must live in the dwelling for 80% of the 365 days preceding the loss) and the dwelling must be insured 80% or more of its full replacement cost or the maximum amount of insurance available under the NFIP.
If the dwelling only meets the definition of a "primary residence" and not the defintion of "principal residence" in the SFIP, then any claim for building damages will be paid using ACV.

All that being said, my questions are:

1. When determining insurable value should we use RCV for principal residence and ACV for primary residence?

2. Will the Declarations page be documented as such?

3. Should the Occupancy statement be updated to include these 2 specific categories?

Bump

Good point, if you want to go the extra mile. How many people don't spend 80% of the time in their primary residence??

I'm just wondering how we can document as well as what are the regulators expecting.

I guess I'll reach out to our regulator since I have heard that absence of guidance does not equate to safe harbor.

Well, you would first have to be dealing with a residence that both values are under $250,000 and then the depreciation would have to be a big factor in the equation, and then the person would have to live there between 50% and 80% of the time. I think you are trying to throw a dart at a moving target. If the consumer complains or the agent suggests to them something different, then re-examine.

Go ahead and ask your examiners - you are going to get a deer in the headlights look as they are not going to have a clue what you are talking about and then they will most likely make something up that makes no sense at all.

!

We received a flood declaration page indicating "Primary Residence" = Y but the home is a non-owner occupied investment property as stated in our loan docs.

do we have to get the declaration page corrected to "Primary Residence = N since we know they don't occupy the property more than 50% of the time.

thanks,

I would, as this is only going to create a problem if there is ever a claim involved.

(continue my previous post). If the primary residence does not get corrected and the coverage is based on ACV, we don't have to force-place, correct? A claim wi pay based on ACV even if the primary residence status is incorrect?

Thanks

Should we force-place flood insurance due to an incorrect primary residence status on the dec page?
Thanks

You don't have to force placed as if RCV was needed, but you are going to have to well document the file to explain why this is the case.