I am new to this so your help is appreciated.

Have a request for a loan, on 36 acres. There are multiple buildings on the land. One of the buildings (insignificant to the loan) is in flood zone per the Flood Cert we received.

Are we still required to have the borrower get Flood Insurance, if the home is not in the flood zone?

Yes, you have to have coverage on any "building" taken as collateral that is in a flood zone.

I should probably preface my answer with "it is up to your regulator" because we have certainly had people out in the field who have given us differing answers before! However I can tell you that the last ones that we had in the field would have said that most likely flood insurance would be required for this request. I say "most likely" because if the structure is truly insignificant it may be valued at less than $5,000. And since the calculation allows for the lesser of the NFIP max, the loan amount or the improved value you might be looking at $5,000 or less. And given that the regulation allows for a $5,000 deductible our regulators hold the position that if the structure is worth $5,000 or less then no insurance is required. But you would need to document how you came to that conclusion. Hope that all makes sense!

I think I may have answered my own question. I was reading in a commentary about what is covered and it states "Pole Buildings" as not being covered in the rule. The building that I was referring to in my scenerio was a pole building (small three sided).

...an insurable structure is a structure with at least two load-bearing walls and roof...The rule does not cover structures such as gazebos, pavillions, pole barnes, and storage tanks, as these buildings do not have a least two load-bearing walls and a roof.

Which is why I placed building in quotation marks. Has to meet the definition for anything else to matter.

Ahhhhhhhhhhh!

Thanks Ray.

From a Buckeye to a Longhorn.

I would venture a guess that when you say "our regulators" you mean your specific field examiners. I am unaware of any of the Federal regulatory agencies that have that as their official stance and it flies in the face of the recent proposed interagency Q&A which states: " A lender may not allow the borrower to use a deductible amount equal to the insurable value of the property to avoid the mandatory purchase requirement for flood insurance."

agree totally with what Randy just said!

Thanks for the feedback but I would still respectfully suggest that you discuss this issue (buildings with a value of $5,000 or less) with your particular regulator. I just spoke to my liaison and he reiterated their stance that structures with a value of $5,000 or less would not require insurance. While consistency among all regulators would certainly be ideal it is probably not a reality.

Well, if you want to get really technical...

1) Standard deductible for new construction (in general) is $500.
2) Standard for older (pre-firm) building is $1000.
3) Optional (lender discretion/not regulator) for a single FAMILY is $5K and for non-residential could be $10K - $50K.

I'm assuming this is non-residential from the original poster, so it could fall outside and be higher than the ACV...however, I would look at reasonableness...not just the "can I get around it".

Remember, the lending institution can be help accountable, so use sound judgement.


To the original poster...an observation. You say your building is a 3-sided pole barn. Truthfully, I've never seen a triangular shaped pole barn...how in the world did they construct the roof? If it is 3 sided in that it has 3 walls enclosed and 1 "wall" open, say for tractor entry, etc...just because the support is poles, does not a pole barn make. A true pole barn has no rigid walls. It's truly open all 4 sides...or at least 3 of them.

" I just spoke to my liaison and he reiterated their stance that structures with a value of $5,000 or less would not require insurance."

IMHO - Your liason is treading in water way over their head. I would request that the laison obtain a written opinion from their regultory agency's legal counsel before forwarding that type of advice as it files in the face of every other document on this subject ever printed by the various regulatory agencies (Mandatory Purchase Guidelines, Proposed Q&A, etc.

They may be confusing that general statement with this exception:

1. What are the exemptions from coverage?

Answer: There are only two exemptions from the purchase requirements: The first applies to State-owned property covered under a policy of self-insurance satisfactory to the Director of FEMA. The second applies if the original principal balance of the loan is $5,000 or less, and the original repayment term is one year or less. Both of these conditions must be present for the second exemption to apply.

D-Man, it may also be helpful to you to read (6) on page 29 of the Guide. "Low -Value Building on High-Value Land"

RR...To clarify, it is a rectangle in shape, only has siding on three sides, no sliding doors, fourth side is open for tractor, equipment, hay...

It's an insurable structure then.

If it needs coverage, Do we figure coverage based on the loan amount and the value of the property, or on the value of the one building in the flood zone?

As I said, I am new to this, and the LO is screaming that they will loose the loan if we require Flood. I have to believe if we are requiring it so shouldn't any other lender.

Second, which Guide are you referring to? The Mandatory Purchase Guide?

Only consider the building in the flood zone. You need insurance for the lesser of the:
1. Loan amount,
2. Value of the building in the flood zone,
3. Maximum from FEMA for the type of structure.

Randy, were the "Proposed Revisions to Interagency Questions and Answers Regarding Flood Insurance" ever finalized?