[kwatson]

I am working on a consumer real estate loan on an empty lot to build a shop. The empty lot is in special hazard flood area. Since there is not currently a structure on the lot, the insurance company cannot issue a flood policy. However, we are loaning the funds up front. Is it okay to fund the loan without the policy considering there is not yet a building, and just make sure we get the policy as soon as the building is complete, or how should we proceed with this transaction regarding the flood?

• This topic was modified 2 years, 5 months ago by kwatson.

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[jholzknecht]

It appears that you are making a loan to build a building on property located in a special flood hazard area. Flood insurance is required. If the insurance company doesn’t understand how to insure a construction loan, finding a new insurance company may make sense.

[kwatson]

Hi Again, would this qualify for the detached structure exemption for flood insurance as it is not attached to his home? It will not have living quarters, is detached, and is for personal purposes. Thank you!

[Kimberly Boatwright, CAMS, CRCM]

It sounds as if you are placing a building on property in a SFHA. Flood insurance does not just apply to residential structures. So using a detached structure exemption may not apply here. Just because it is not a residence will not exempt it from flood requirements. There are specific standards in the Flood FAQs from may of 2022 that need to be followed to use the detached building exemption. Not knowing enough about the transaction leads me with the following thoughts –
Couple of things need to be considered:
1. What is the primary purpose of the shop?
2. Are either parties trying to circumvent the regulation of requiring flood insurance?
3. if there was a flood would this cause harm to the borrower and/or the institution?

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