2007 Update to FFIEC Interagency Questions and Answers on Flood Insurance
Mr. Van Meter:
Thank you for the opportunity to comment on the “Interagency Questions and Answers Regarding Flood Insurance” (Interagency Q&A). I would like to comment on the definition of “improved real property” as defined in The National Flood Insurance Act of 1968, as amended, and The Flood Disaster Protection Act of 1973, as amended (The Act) as well as the answer to Question 21 of the Interagency Q&A.
The Act defines the term “improved real estate” as real estate upon which a building is located. Under 42 USC Section 4012a.(b)(1), it goes on to say that “Each Federal entity shall by regulation direct regulated lending institutions not to make, increase, extend, or renew any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Director as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, unless the building or mobile home and any personal property securing such loan is covered for the term of the loan by flood insurance…”
Under Section V of the Interagency Q&A, Question 21 asks whether a lender is required to mandate flood insurance for such buildings a farmer would not replace if lost in a flood. The answer to the question is yes, with the following statement, “Under the Regulation, lenders must require flood insurance on real estate improvements when those improvements are part of the property securing the loan and are located in an SFHA in a participating community.” This answer seems consistent with the definition of improved real estate under the Act.
When considering the definition of “improved real estate” and the answer to question 21, it could then be said that lenders do not need to require flood insurance on real estate improvements when the real property is not securing the loan unless it is a mobile home. For example, if a grain bin is securing the loan, but the property is not securing the loan, then the grain bin would not fall under the definition of improved real estate as defined by the Act, since the loan is not secured by real estate upon which a building is located. Very often, a UCC fixture filing is completed for loans secured by grain bins, so no real estate is taken as collateral.
Again, I thank you for the opportunity to comment.