We have a loan with 3 properties on it and all are in a flood zone. The loan balance is around $400,243.00.
We have received flood policies from the borrower on two of the properties and the coverage is $250,000.00 for each. We just received a third policy from the borrower and the flood coverage on the policy is for $11,600 due to the fact his elevation certificate was filled out improperly. He will have to re-submit his request for the elevation.
My question is: Are we ok with having the 2 policies totaling $500,000 and the one policy totaling $11,600? This gives us $511,600.00 in coverage. The total of the 2 polices alone is well above the amount of the loan balance. Or, do we need to send him a 45 day deficiency letter for the third property stating we will add the deficiency amount of coverage to his loan for that property?
First calculate the amount of flood insurance that is needed.
Loan Amount $400,243
FEMA Max. $&50,000 (3 residential buildings) to $1.5 million (three non-residential buildings)
Value of the Imp. Information not provided.
If the smallest of the three amounts is the loan amount, then insurance of at least $400,243 is needed. You need a policy on each building. The total can be split among the three properties in a variety of ways. The current split appears to comply, but are you satisfied with those amounts? If the third building is worth substantially more than $11,600 I would not be satisfied with that amount of coverage. Since you apparently are in compliance at the moment you have time to work with the borrower to obtain coverage in an amount acceptable to your bank.