[Anonymous]

We have a property in a flood zone with several buildings. According to a letter from the insurance agent, “Due to the condition of the white wooden barn, metal ICM building and rice bins located at……. and the residence located at….. we were unsuccessful in finding an insurance company that would offer property coverage on these buildings.” We have force placed flood insurance for the last 2 years. This is an older loan and we don’t have a current appraisal, nor do they plan on getting an appraisal or internal evaluation any time soon. What would be the best way to move forward with this? Possibly require enough insurance to cover demolition costs? Thank you!

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[rcooper]

I assume the agent has looked into an NFIP policy (and maybe private policies too) and this is the result of the property value being deemed below the NFIP deductible? Is that accurate? If so, it would not be insurable because the owner would be purchasing something that would never be of benefit them. If the value of the property is not below the NFIP deductible it seems demolition value would be one option to consider in determining the insurable value. You want to ensure adequate coverage but not more coverage than the customer will ever receive the benefit of.

Look at Q&A #9 on p. 8: https://www.fema.gov/media-library-data/20130726-1742-25045-5644/interagency_q_as.pdf. The proposed q&a #9 from 2009 specifically referenced demolition as a method to determine value. The finalized q&A linked here from 2011 doesn’t specifically mention it; rather, they leave it open to various methods and do not exclude demolition as an option.

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