Flood Insurance & Mobile Homes Clip from July Monthly Connection

This clip is from Memory Lane during the July 2020 Monthly Connection. Take a look at this peer group! https://store.bankerscompliance.com/link/MConnection


Head on into section five. Jarod and I talked through this this morning. It took much longer than I thought it was going to, but this is from those new Q&As, but it’s nothing new. It’s an area to me that often gets misunderstood. Notice that we say the notice, that’s the section in the new proposals. It has to do with giving the notice. It’s question number two and it’s talking about mobile homes. What I want to do is have you all read through this and I’m going to break this down into really four different components here.

The question is about, we don’t know where they’re going to put their mobile home. What do we do? And so starting out there, first off, let me do this. I need to define what a mobile home is. A mobile home, as they explain in here is something that’s built on a chassis, et cetera. Flood insurance comes into play when the mobile home is put on a permanent foundation. Now what does that mean? I have a memo that here.

This is back in 2000. I actually emailed what was FEMA had kind of a helpline and they basically explain, let me see if I can just attach this here. There. Must a mobile home be tied down? Was kind of the question. What is a permanent foundation? Because the definition of mobile home means that it’s off of its tires. It’s not on its case anymore. Now I’m going to use this wording. If it’s a mobile home that can roll down the road on tires, I’m going to call that an RV. And I know there’s a big difference here. I’m talking about let’s just say a mobile home that qualifies for flood insurance means that it’s off of the tires. It’s supported on some type of foundation. It’s most likely going to be hooked up to utilities and stuff like that. And that’s what this memo that I just put up there talks about.

But let’s talk about a mobile home that isn’t yet. And that’s where this question starts out. We don’t know where this thing’s going to be. Their answer goes into, you must provide the notice of special flood hazard within a reasonable period of time, prior to completion of transaction. There’s a footnote 46 about that. If the lender determines that the mobile home’s carrying the loan will be located a special flood hazard just prior to closing. Hey, Jarod’s buying a mobile home and we gave him a loan to buy one, but we don’t know where he’s going to put it. And then right before closing, he says, “Aha, this is where I’m going to put it.” Now and that’s probably pretty rare.

Well, what they’re saying is in that case, then you need to check where’s that property at? Do your flood determination. If it comes back, that it’s in a special flood hazard area, you may or may not have to do flood requirements. Why? Because is it going to be on a permanent foundation? And that’s of the second part that I’ll get to in just a minute. Now so what they’re saying is, if you realize that it is going to be a special flood hazard area and if it’s going to be on a permanent foundation, I’ve got to give them the notice and I might need to delay the closing to give him the notice, a reasonable period of time so he can go out and buy this insurance. I’m going to draw a line. That’s kind of one, let’s go to the next one.

It says in the case of a loan transaction secured by a mobile home not located on a permanent foundation. In other words, it’s still got its tires. That that home only transactions are excluded from the definition of mobile home. I use the word RV or camper or whatever. If it’s still on his tires, then it doesn’t qualify. And the note’s requirements would not apply. However, the agencies encourage you to still advise the borrower that the mobile home is later located in a permanent foundation that they wouldn’t need to have it. Let’s call that number two.

Now let’s go to the last part. If the lender, when notified of the location of the property of the mobile home, subsequent to loan closing. We’ve closed your loan and then we find out that you’ve put it on a permanent foundation and it’s located in a special flood hazard area, then I’m going to have to require flood insurance. And forced placement must be given. If the borrower fails to buy it, then I’ll buy it for them.

Now here’s the thing that they didn’t get into but I think they’re inferring or this memo that I just put up in the chat function, Jarod doesn’t tie down his mobile home. It’s on a permanent foundation, which basically means that it’s on cinder blocks or whatever. It’s just off of its tires. That’s what the definition says. And that’s what this memo that I put up there says, sometimes we have borrowers or lenders will tell us where our borrower went to buy insurance and the agent told him, “I can’t sell it to you because it’s not strapped down.” They didn’t say in this question and answer, “If it’s tied down you have to make them buy insurance.” It says, “If it’s in a special flood hazard area and it’s off its tires, it’s on some type of permanent foundation, then you must get insurance.”

I’m going to add to this, if you have a mobile home off a foundation in a special flood hazard, I tell Jarod, “Go buy flood insurance.” Jarod goes to his agent says, “I can’t sell it to you, Jarod, because you didn’t strap it down.” He comes back to me and says, “Dave, I can’t buy the insurance.” “Why not?” “Because it’s not strapped down.” “Well Jarod, go strap your trailer down. You have to have insurance.” That’s what this question and answer says, not quite as direct as I wish, but they certainly do say you must have insurance. To qualify for flood insurance, NFIP at least, it has to have straps. And that’s what I put up in the chat function.

I just want to revisit this old topic because this new Q&A is clarifying this a little bit and I really we’re running short on time. Maybe that if have questions about that as a topic, we can visit more. But I hope that’s crystal clear to you all. Now I’m going to throw out one more thing, Jarod and I were discussing this, how many mobile homes do you know, Jarod, are strapped down?

I’m going to have to look this weekend. I’ve got a lake cabin, there’s several around there. I don’t know if I’ve ever seen one tied down.

Right. And I was telling him when I was in college, I lived in a mobile home and we actually got the tie downs. They are literally straps and there’s big old corkscrews that go in the ground. Now, here’s the other thing, for those of you lenders that are going “Nah, we don’t do that.” I’m going to challenge you something. Do you have hazard insurance? I’m going to bet you all do. Pull out your hazard insurance policies on your mobile homes. I guarantee you, every single one of your mobile home hazard insurance policy says it has to be tied down to resist wind. And so if you’re saying, “Oh, we don’t think so.” Check that out. You may not have an adequate hazard insurance policy or your policy may not pay is what I’m trying to say if you don’t tie them down.

If I’m wrong, I’m going to ask you to notify me. Email us or call us and let me know. I have never seen a mobile home policy that didn’t have the wording about tie downs on the hazard insurance side. And so if you aren’t strapping them down, you don’t really have hazard insurance as well as flood insurance qualifications. With that, I’m going to get off this.


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