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Flood coverage on detached structure

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This topic contains 3 replies, has 2 voices, and was last updated by  rcooper 3 weeks ago.

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  • #16408

    kmeade
    Participant

    If the appraisal for property located in a positive flood zone notes that on the day of inspection a family member’s manufactured doublewide home and a small storage building was situated on the land being appraised. The improvements of the manufactured home and small storage building were not given a value or reflected on this appraisal, due to the borrower having no interest in and only allowing use of his land without charging any fees.

    We would not use the titled manufactured home, but since the small storage building is attached to the real property wouldn’t it require flood coverage? This loan is on the borrower’s primary residence and they do not charge for the use of this land, so could the small storage building be excluded per the detached structure rule?

    #16422

    rcooper
    Keymaster

    It sounds like it could meet the exemption. Is it part of the residential property securing the loan? Is it detached from the residence? Have you confirmed it is not being used as a residence? Based on the information you’ve given, if you answer yes to all of those then it seems as though it could be excluded. If you don’t have a security interest in the mobile home flood insurance wouldn’t be required.

    (a) In general. An FDIC-supervised institution shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the building or mobile home and any personal property that secures a loan and not the land itself.


    (c) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. For purposes of this paragraph (c):

    (1) “A structure that is a part of a residential property” is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes;

    (2) A structure is “detached” from the primary residential structure if it is not joined by any structural connection to that structure; and

    (3) “Serve as a residence” shall be based upon the good faith determination of the FDIC-supervised institution that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.

    #16423

    kmeade
    Participant

    On the land, there is a house, a manufactured home (not used), and a small outbuilding next to the manufactured home. The owner of the property is the borrower and is living in the house. The manufactured home is owned by the daughter (not on loan), and the owner/borrower of the house/land says the small outbuilding is the daughters, not his (even though the outbuilding is attached to his real property). What concerned me is since the owner/borrower says the outbuilding is not his, would it be considered a detached structure of his primary residence. The outbuilding is beside the manufactured home, not next to the house, but within a visible range.

    #16426

    rcooper
    Keymaster

    It’s definitely a scenario I don’t think the regulators anticipated. However, in looking at the exception language I don’t see anything that would preclude it from applying. With that said, you can always require insurance if you choose to do so. And of course, reaching out to your regulator is always an option in situations where you feel like they are open for interpretation.

    From what you’ve described it seems to check all the boxes (in bold): c) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. For purposes of this paragraph (c):

    (1) “A structure that is a part of a residential property” is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes;

    (2) A structure is “detached” from the primary residential structure if it is not joined by any structural connection to that structure; and

    (3) “Serve as a residence” shall be based upon the good faith determination of the FDIC-supervised institution that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.

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