Compliance Q&A: Flood Insurance Considerations

Q: If the bank takes a commercial property in a business name as an “Abundance of Caution” and the property is in a flood plain; is the bank still required to make sure that there is flood insurance?

A: If the commercial property has a structure on it that is in a flood zone, then flood insurance is required.

There is not an abundance of caution exemption in the flood rules, unfortunately.

“(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.” SID=bbdbb2f5e03b0930b05c3df9ec79458d&mc=true&node=se12.5.339_13&rgn=div8


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