Q: Condo and Co-op 4 – For residential condominiums with no RCBAP coverage, what action must a lender take for an individual unit owner?
A: If there is no RCBAP on the residential condominium building, then the lender must require the individual unit owner to obtain coverage in an amount sufficient to meet the requirements outlined in Q&A Condo and Co-Op 3.
Under the NFIP, a Dwelling Policy is available for condominium unit owners’ purchase when there is no or inadequate RCBAP coverage.
Example: The lender makes a loan in the principal amount of $175,000 secured by a residential condominium unit in a 50-unit residential condominium building, which is located in an SFHA within a participating community, with a replacement cost value of $10 million; however, there is no RCBAP.
• Outstanding principal balance of loan is $175,000.
• Maximum amount of coverage available under the NFIP, which is the lesser of:
o Maximum limit available for the residential condominium unit is $250,000; or
o Insurable value of the unit based on 100 percent of the building’s replacement cost value ($10 million ÷ 50 = $200,000).
The lender must require the individual unit owner to purchase flood insurance coverage in the amount of at least $175,000, since there is no RCBAP, to satisfy the Regulation’s mandatory flood insurance purchase requirement. (This is the lesser of the outstanding principal balance ($175,000), the maximum coverage available under the NFIP ($250,000), or the insurable value ($200,000).)