Int Q&A – Other Security Interests 9 – Does the Regulation apply when the lender takes a security interest in improved real estate and contents located in an SFHA only as an “abundance of caution”?

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Q:  Other Security Interests 9 – Does the Regulation apply when the lender takes a security interest in improved real estate and contents located in an SFHA only as an “abundance of caution”?
 
A:   Yes. The Act and Regulation look to the collateral securing the loan. If the lender takes a security interest in improved real estate and contents located in an SFHA, then flood insurance is required.

The language in the loan agreement or security instrument determines whether the improved real estate and contents are taken as security for the loan. If a lender intends to take a security interest in the improved real estate and contents, the loan agreement or security instrument should include language indicating that the improved real estate and contents are security for the loan. If the lender does not intend to take a security interest in either the improved real estate and/or contents, the loan agreement or security instrument should not include language to this effect, including language inserted out of an “abundance of caution.”
 
 
ADDITIONAL INFORMATION:
This Q&A was included in the Interagency Questions and Answers Regarding Flood Insurance, which were issued on 05/11/2022.  They were published in the Federal Register on 05/31/2022 and may be found here:  https://www.federalregister.gov/documents/2022/05/31/2022-10414/loans-in-areas-having-special-flood-hazards-interagency-questions-and-answers-regarding-flood
 

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