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My bank is making a loan secured by an old farmhouse with other structures on the property. Only the outhouse and an old chicken coop are located in a Special Flood Hazard Area. Is the bank required to obtain flood insurance on the low-value structures? If so, how much?

My bank is making a loan secured by an old farmhouse and some other buildings/structures, of which only the outhouse and an old chicken coop are located in a Special Flood Hazard Area. The property will not be used for agricultural purposes. Is the bank required to obtain flood insurance on the low-value outhouse and chicken coop? If so, how much flood insurance should the bank require given that neither building has much value?

It depends. For example, if the two structures are not affixed to a permanent site, they are not “buildings” under the rule. Thus the loan would not be subject the flood insurance coverage requirements. Even if affixed, they may be excluded from coverage under the “detached structure” exemption for structures that: (1) are part of a residential property (e.g., not used for agricultural purpose); (2) are detached from the primary residential structure; and (3) do not serve as a residence. If, however, the buildings/structures are not eligible for one of these or other exclusions, the bank must determine whether there is any “insurable value” associated with the buildings or if they are otherwise insurable. If so, they would technically require flood insurance coverage even though the value may be low. It may be prudent to consult with a flood insurance professional. ABA continues to request guidance from the regulatory agencies on this matter as well as advocating for legislative reforms to address this and other issues. (March 2018)

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