A lender did a loan and in my review after the fact I noticed it was in a flood zone. The policy in the file is a private flood insurance policy i/a/o $250,000 dwelling coverage. Our loan amount is $469,000 and the property is valued at $480,000.00. Would we need to go back to the borrower to have them purchase an NFIP flood policy for the additional $219,000.00?
Arguably, you are in compliance. The amount of the insurance should equal to the lease of:
– Loan Amount$469,000;
– FEMA’s Max for a dwelling $250,000; or
– The value of the improvements. This amount is not clear. The value of the improvements is generally the appraised amount less the value of the land.
The above determines the minimum amount required. While FEMA will not issue a dwelling policy in an amount greater than $250,000, a private policy in a larger amount may be obtained. In no circumstance should insurance in an amount that exceeds the value of the improvements be required.