We are looking at making a 2nd lien loan on a home located in a SFHA. The 1st mortgage is at another institution that has not required flood insurance. According to FAQ 36, a bank must ensure sufficient flood coverage is in place for a prior lien and include the subordinate lien because the policy would pay the 1st mortgage holder first. Is that only for an NFIP policy? If the borrower obtains a private flood insurance policy, and only our bank is name as loss payee, would the unnamed mortgage holder still get paid first, or would we? Assuming this is allowed?
Under a FEMA policy, the lienholders are paid in the order of the priority of the liens. The same is likely true for a private policy, but that can only be determined with certainty by reviewing the private policy.