Sufficient Flood Contents


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    We have two commercial loans in the process of origination.

    The first loan’s purpose is building purchase and is collateralized with the building. The building is in a flood zone.

    The second loan’s purpose is building interior finish out and equipment purchase. The collateral is UCC All Business Assets, FF&E, etc. (generalized blanket language) of the building in the flood zone.

    The borrower is schedule to purchase sufficient flood insurance coverage for the building.

    We’ve run into a complication for determining the minimum required insurance amount for the contents coverage for the second loan.

    The loan amount will either be $300,000 or $304,500 there is modification being completed.
    The maximum amount available from the NFIP is $500,000 for contents coverage.
    We don’t appear to have the ability to determine the insurable value of the collateral prior to origination. At this point, the customer doesn’t have the final detail of the breakdown, but they would not exceed $300,000 in costs. The note will be set-up as a 6-month draw note and the bank will advance funds as we receive invoices for the work done and the equipment/etc that will be purchased. I would assume these numbers could possibly move around a bit between now and the time they purchase.

    The loan officer has specified that $300,000 is the amount of insurance the borrower needs to purchase based on the following.
    1) The borrower provided an overall construction estimate of $172,270 in April/May 2021.. Since then, the customer has asked for an increase to $195,500 for estimated cost increase in materials/labor
    2) The borrower has provided an overall equipment estimate of $104,500, which the detail of the purchases have not yet been broken out.

    $195,500 + $104,500 = $300,000 loan amount

    I can’t say for certain though that the loan amount is the lesser of in this scenario. Certain itemized budget items associated with interior finish out will not be covered by flood contents insurance e.g. labor costs, contingencies, etc. even though certain materials purchased for the finish out will be. My concern is that the we bank may inadvertently require the borrower be more insurance than what the borrower would receive should they experience a flood.

    The policy they are scheduled to purchase is a Private Policy and does meet the regulatory definition of private flood insurance.


    It appears that the second loan is secured by “all Business Assets, FF&E, etc. (generalized blanket language) of the building,” but not by the building itself. In that case flood insurance is not required on the contents. Contents coverage is required when the loan is secured by the building and the contents.

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