Q: The property securing a loan is a residential investment/multi-family property. The owner and mortgagor is NOT a tenant in the property. We do file UCC’s on all personal property for the borrower, and our security agreement and mortgage also mention personal property and all assets.
The contents belong to the tenants. What coverage would we ask for?
A: If the borrower does not store any personal property in the building securing the loan, then there are no contents to insure. Flood insurance requirements for contents are limited to contents securing the loan that are stored in the building that also secures the same loan, provided that the building is located in a SFHA. In this scenario, a bank should make sure that all movable property stored in the building belongs to the tenant. If all contents belong to tenants and not the borrower, no contents coverage is required. Any movable property stored in the building that belongs to the borrower would trigger the requirement to obtain contents coverage.
– This Q&A was included in the materials from the FDIC New York Region Regulatory Teleconference: “Flood Insurance – Flood Insurance Compliance and an Examiner’s Perspective” which took place on December 3, 2012. These materials may be found here: https://www.fdic.gov/news/conferences/NY/2012-12-03.html