NFIP Interpretation Question
The maximum available insurance is $250,000 per residential building –when I have a 4, 5 or even 8-unit apartment building, I interpret that to mean that the maximum NFIP insurance available for that “building” is $250,000. Please let me know if this is not a correct interpretation.
What happens when those units are not apartments, but individually-owned Townhouses that share one or both “outside” walls? In the scenario that I have before me today, I have a construction loan for five Townhouses, all in a row, but sharing one or two walls (depending on whether they are on the end or in the middle). Together, what they form could be called a building, but because they will be individually owned when sold by the builder, wouldn’t I consider them as five units or buildings and consider the maximum available insurance during construction at $1,250,000? These are not condos.
October 7th, 2006 at 6:47 pm
You are correct in your interpretation in the first paragraph.
To your question your reasoning makes sense in that the insurable value of each townhouse under the NFIP will be a maximum of $250,000 once construction is complete and the units are individually sold. Even though the builder can obtain one General Property Form Policy with a limit of $250,000 during the course of construction phase, you have the option to require 5 separate Dwelling Property Policies, one each on the 5 units, for the full replacement value upon completion or $250,000 maximum limits. By opting for the multiple policies, you help to ensure that you are protecting the collateral as best you can with the options available to you. Convincing your borrower that it is a good thing, can a different matter.