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My bank has a loan request to purchase a condominium in a designated flood zone. May the customer purchase his own flood insurance policy to cover his unit or does the condominium association need to obtain a Residential Condominium Building Association Policy (RCBAP)?

My bank has a loan request to purchase a condominium in a designated flood zone. The customer states that he is required to purchase his own flood insurance policy. My understanding is that the condominium association must obtain a Residential Condominium Building Association Policy (RCBAP), and only if insurance is insufficient, the bank may request a supplemental policy from the customer. Is my understanding correct, or may the customer purchase his own flood insurance policy to cover his unit?

The customer may purchase his own flood insurance policy. From the 2009 Interagency FAQs:

“29. What action must a lender take if there is no RCBAP coverage?

Answer: If there is no RCBAP, either because the condominium association will not obtain a policy or because individual unit owners are responsible for obtaining their own insurance, then the lender must require the individual unit owner/borrower to obtain a dwelling policy in an amount sufficient to meet the requirements outlined in Question 28. A dwelling policy is available for condominium unit owners’ purchase when there is no or inadequate RCBAP coverage. . .”

(February 2020)

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