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Published byCori Stafford Modified over 9 years ago
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1 ASFMRA Annual Meeting October 28, 2009 Appraisers, Lenders, and Flood Insurance
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2 Appraisers, Lenders, Flood Insurance Federally regulated lenders are subject to requirements of the National Flood Insurance Program (‘NFIP’). FEMA clarified it’s flood insurance guidelines in 2007. Lenders are responsible to determine if a building is, or will be, located in a Special Flood Hazard Area (‘SFHA’). Flood determination is made prior to loan origination. If a flood determination is made on the property and any portion of the property lies in a FEMA-defined flood zone, then the loan is “designated”. Lender must provide notice to landowner if the collateral is in a SFHA; this applies even if the collateral is “land only”.
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Appraisers, Lenders, Flood Insurance FEMA Flood Hazard Zone Designations Mandatory flood insurance is required on buildings situated in Zones beginning with A or V. These areas are highly susceptible to flooding. Zones B, C, and X are areas lying outside of the 100-year floodplain or protected by a levee. Flood insurance is not mandatory within these areas. Property must be in a community that participates in the NFIP for mandatory purchase requirements to apply. 3
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5 If the property (collateral) lies within a SFHA: The building(s) location in relation to the SFHA determines compliance. Some portion of the building must be in a flood zone; not just the site. If a building is within a flood zone, and a lender has a security interest in that building, the lender must require the purchase of flood insurance. Each affected building must have a separate flood insurance policy. The amount of required flood insurance is based on the “Insurable Value” of the affected building – not it’s market or contributory value. The term “insurable value” is defined by FEMA.
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Appraisers, Lenders, Flood Insurance 6
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How much flood insurance coverage is required? FEMA regulations stipulate it’s the lesser of: The outstanding loan principal balance, or The maximum available under the NFIP, which is the lesser of: The maximum available for that type structure, or The “insurable value” of the structure. By FEMA’s definition, “insurable value” is 100% Reproduction Cost New. However, for farm/ranch buildings, it is the: a) Functional Building Cost Value – what appraisers know as Replacement Cost New. b) Demolition/Removal Cost Value – use if building would not be replaced in event of loss. 9
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If a building is within a SFHA and a NFIP- participating community, here are options: Demolish it. Property owner purchases adequate insurance. Lender force places adequate insurance. Release the building as collateral. Appeal FEMA for reclassification of the site. This may require a professional survey with base elevations in support of request. If required, there is a 45-day period for the borrower to obtain evidence of adequate insurance. Otherwise, flood insurance must be force placed by lender. 10 Appraisers, Lenders, Flood Insurance
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Bottom line – What’s on your subject property? Be certain about buildings and flood hazard areas before a landowner has to insure or demolish this… 11 Appraisers, Lenders, Flood Insurance
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QUESTIONS? 12
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