Compliance Alliance Question of the Week

​Question:
We have a potential borrower who has several buildings we will be taking as collateral. The corner of one building is in a flood zone. We have requested flood insurance covering the entire building. Our borrower stated that his previous lender allowed them to obtain flood insurance on the one unit of the building that has the corner in the flood zone. We disagree with this. Should we receive flood insurance on the entire building?
 
Answer:
That is correct. Under the “one brick rule,” if the bank is taking the entire building as collateral and if even one corner or brick of the building is in the flood zone, the entire building must be covered. There’s not an exception for only securing the percentage of the building that is in the flood zone, unfortunately.
 
This was discussed in our latest flood webinar:
https://www.compliancealliance.com/news-events/an-in-depth-look-at-flood-insurance-webinar-2019
 
(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.
https://www.ecfr.gov/cgi-bin/text-idx?SID=463dc6e6b10404e4021fd57c6eccf410&mc=true&node=se12.5.339_13&rgn=div8