A question we received from a member:
Would flood insurance be necessary on contents/personal property if we do not have a lien on the property, and only took a security interest in the contents/personal property, and the contents are in a flood hazard area.
An example would be where we only have a lien on equipment, but not on the building, which is in a flood hazard area.
The reason I ask is because of a FDIC newsletter that came out on the topic.
We are afraid that we might miss this requirement, if it is indeed required, because a flood hazard determination is not pulled since there is no real estate involved.
If you could advise, that would be great.
Is this the newsletter that came out in June on Best Practices for Contents Coverage? If this is what you’re referring to, it is informing you that your security agreement/mortgage instrument might state that the building contents/business assets are securing the loan as well as the building. And in this situation, even if you don’t perfect the lien on the contents (i.e. by filing a UCC on the contents), you would still need to obtain flood insurance if your mortgage instrument states you have a security interest in all business assets/contents (or something similar) and the building securing the loan is in a SFHA.
So, you are correct that if the building housing the contents does not secure the loan then you are not required to have flood insurance on the contents even if it is in a flood zone. In other words no building, no flood insurance required.
If you are referring to a different newsletter, please let me know.