[Sandy]

We have a home loan that where the flood maps have been revised, the property is now in a flood zone, and will require flood insurance. The loan is in a husband and wife’s name. The property is a rental single family dwelling with a detached garage and small storage building. If this is a rental home (business loan) can a detached structure exemption be used on the detached garage AND the small storage building?

1) Is the exemption for ANY residential property even if the home is not the borrower’s personal residence?
2) Is there a limit of structures that can have the exemption used for if the exemption can be used?
3) The loan balance is $65,000. The appraised value is $137,000 (land value is $12,000 and detached garage is $10,000) The small storage building is possibly worth $2,000 (I will get the appraiser to give me a more definite value) If the exemption can NOT be used I assume we will need coverage totaling $65,000 on all 3 structures. If the small building is less than what the maximum deductible can be ($5,000) do we have to require a flood policy on it?

[Kimberly Boatwright, CAMS, CRCM]

The rules are written as follows:

According to the final rule, “a structure that is part of a residential property” refers to a structure used primarily for personal, family, or household purposes and not used primarily for agricultural, commercial, industrial, or other business purposes. In instances in which certain structures are used for both residential and business purposes, the exemption applies only to structures with a primary residential purpose. A structure is “detached” if it stands alone, meaning it is not joined by any structural connection to the residential structure. Furthermore, the detached structure may not “serve as a residence.”

Based on how I’m understanding your questions:
1. The house would be required to have insurance because it is used as a residence.
2. The fact that is not a personal residence of the borrower would not exempt it from insurance.
3. The rules do not speak to a limit on structures – only to being used as a residence.
4. Neither the garage or the storage buildings sound as if they are used as a residence.

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