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Compliance Alliance Featured Q&A

Question:

Would flood insurance be required on a loan in which the bank is only taking a mobile home as collateral?

Answer:

If the mobile home in question is affixed to a permanent foundation / site (and presuming that the mobile home is located / will be located in an SFHA, and the community in which the mobile home is located participates in the NFIP), then the subject property would meet the definition / eligibility of a building, even without any land being taken as collateral, and therefore flood insurance would likely be required under 12 CFR 339.3(a).

It is worth noting that if the mobile home is not located on a permanent foundation – i.e., a so-called “home only” loan – the regulatory agencies note that such transactions are generally excluded from the definition of mobile home and the notice requirements would not apply to these transactions:

“In the case of loan transactions secured by mobile homes not located on a permanent foundation, the Agencies note that such “home only” transactions are excluded from the definition of mobile home and the notice requirements would not apply to these transactions. However, the Agencies encourage a lender to advise the borrower that if the mobile home is later located on a permanent foundation in an SFHA, flood insurance will be required. If the lender, when notified of the location of the mobile home subsequent to the loan closing, determines that it has been placed on a permanent foundation and is located in an SFHA in which flood insurance is available under the Act, flood insurance coverage becomes mandatory and a force placement notice must be given to the borrower under those provisions. If the borrower fails to purchase flood insurance coverage within 45 days after notification, the lender must force-place the insurance.” Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers (pdf. pg. 193 – 194)

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