Servicing Guide

Published June 13, 2018

B-3-03: Flood Insurance Requirements for Mortgage Loans Secured by a Unit in a PUD, Condo, or Co-op (12/14/2016)

This topic contains the following:

Determining Minimum Coverage Amounts

When a mortgage loan is secured by a unit in a PUD, condo, or co-op project and any part of the improvements are in an SFHA, the servicer must verify the HOA or co-op corporation is maintaining a master policy of flood insurance and providing for premiums to be paid as a common expense.

The following table provides additional requirements depending on the project type.

Project Type Coverage Requirements

PUD

The same flood insurance required for other one- to four-unit properties is required for individual PUD units. See Determining Minimum Coverage Amounts in B-3-02, Flood Insurance Requirements for Mortgage Loans Secured by a One- to Four-Unit Property for the required amount of coverage. A stand-alone dwelling policy may be maintained to meet these requirements.

Condo

The HOA must obtain a Residential Condominium Building Association Policy or an equivalent private policy for each building located in an SFHA that must consist of the following three components:

1. building coverage, which must equal at least 80% of the insurable value of the common elements and property, including machinery and equipment that are part of the building;

2. contents coverage, which must equal 100% of the insurable value of all contents, including machinery and equipment that are not part of the building, owned in common by the association members; and

3. coverage for each unit, which must be based on the coverage requirement for mortgage loans secured by one- to four-unit properties, as described in Determining Minimum Coverage Amounts in B-3-02, Flood Insurance Requirements for Mortgage Loans Secured by a One- to Four-Unit Property.

If the condo project master policy meets the minimum coverage requirements but the unit allocation does not meet the one- to four-unit coverage requirements, a supplemental policy must be maintained by the borrower for the difference.

Co-op

The co-op corporation must have a separate flood insurance policy for each building located in an SFHA. The policy must cover the building and any common elements and property, including machinery and equipment owned in common by the shareholders of the co-op corporation.

The coverage amount must be at least equal to the lesser of

  • 100% of the insurable value of each insured building, including all common elements and property; or

  • the maximum coverage available under the NFIP.

Named Insured and Mortgagee Clause Requirements

See Named Insured and Mortgagee Clause Requirements in B-2-03, Property Insurance Requirements for Mortgage Loans Secured by a Unit in a PUD, Condo, or Co-op for information on the required mortgagee clauses, which are the same for flood insurance.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC-2016–11 December 14, 2016
Announcement SVC–2015–11 August 12, 2015