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I have a situation that I’ve not had before. We made 2 separate loans 1) secured by real estate and 2) secured by a UCC on inventory. The real estate is in a flood zone and the clients carried flood insurance on the building and then contents also. They have paid off the loan with the real estate securing it. Loan #2 with a UCC on contents is also secured by a $200,000 CD, the balance of the loan is approximately $430,000. The clients now want to drop ALL flood insurance. I said they still have to carry content insurance, on $230,000. My loan officer disagrees with me and says it’s OK to let them drop all flood insurance. Can you help?
From the Interagency Flood Q&A #40:
If a loan is secured by Building A,
which is located in an SFHA, and
contents, which are located in Building
B, is flood insurance required on the
contents securing a loan?Answer: No. If collateral securing the
loan is stored in Building B, which does
not secure the loan, then flood
insurance is not required on those
contents whether or not Building B is
located in an SFHA.You may also want to look at Q&A #39: https://www.fema.gov/media-library-data/20130726-1742-25045-4927/interagency_q_a.pdf.
As a lender, you may want to consider requiring insurance, if available, on your collateral even if it isn’t required by the flood rules.
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