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Exempt Structure Rule

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  • #8146
    knapier
    Member

    1.)If a loan has a residence and 4 other buildings (garage, pool house, workshop and lawn mower storage shed), which buildings would be considered valid in the exemption rule as long as they do not have the capability of a residence. (Meaning they do not have a sink, bathroom or kitchen) The workshop is not used for business purpose.

    2.) There is no limit to exemptions on a loan as long as they fit the criteria?
    3.) This does away with the 10% of the homeowner policy covers the detached garage rule?
    4.) Does the residence have to value enough to cover the loan by itself without the detached structure if it is exempt from the flood requirement?

    #8156
    rcooper
    Member

    1.)If a loan has a residence and 4 other buildings (garage, pool house, workshop and lawn mower storage shed), which buildings would be considered valid in the exemption rule as long as they do not have the capability of a residence. (Meaning they do not have a sink, bathroom or kitchen) The workshop is not used for business purpose.

    If it is part of a residential but detached (which I’m assuming all of these are) you could use the detached structure exemption as long the structure isn’t used as a residence or for business purposes. They do not necessarily have to have a sink, bathroom or kitchen to be used as a residence – those are general guidelines. You need to make a determination for each structure. (If I were an examiner I would probably question the pool house, workshop and garage more than the storage shed, so make sure your file is well documented as to why they meet the exemption).

    2.) There is no limit to exemptions on a loan as long as they fit the criteria? Correct
    3.) This does away with the 10% of the homeowner policy covers the detached garage rule? I believe you the NFIPs still allow for allocation of 10% of the policy coverage toward a detached garage. Talk to the insurance agent about that.
    4.) Does the residence have to value enough to cover the loan by itself without the detached structure if it is exempt from the flood requirement?
    That is a safety and soundness concern and your financial institution will need to make that determination. It completely makes sense for those structures that don’t contribute a lot of value to your collateral. But you could have a residence that has a very large, nice garage that isn’t used for business or residential purposes but add significant value to the property – what position would your FI be in if there was a loss of that structure? We have heard from some of our members that they will always use the exemption if possible, some that will never use it, but most say it will be on a case-by-case basis.

    – See more at: https://www.jackscomplianceresource.com/forums/topic/exempt-structure-rule/#sthash.WuGLWYNM.dpuf

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