What is force-placed flood insurance for commercial real estate?

Commercial real estate located in high-risk flood areas is generally required to be protected by flood insurance, and most lenders likewise require flood coverage for properties in these zones. When property owners don’t get or keep adequate coverage on their own, lenders often have the option of using force-placed flood insurance.

Force-placed flood insurance is a specialized form of physical damage insurance for when owners don’t meet flood coverage requirements. Policies are readily available for commercial real estate.

When should lenders get lender-placed flood insurance for a commercial property?

Lender-placed flood insurance usually can be obtained when the owner of a commercial property doesn’t maintain the required flood coverage. Getting coverage may ensure that a lender’s equity is still protected.

Making sure flood coverage remains in place can be particularly important when financing in high-risk flood areas, such as along the California coastline, in downtown riverfront districts, or near almost any other body of water. Even small streams can pose flood risk if they run near a commercial building.

Because putting in lender-placed flood insurance generally requires legal backing, lenders would be wise to consult an attorney and insurance agent who specializes in this coverage first.

Force Placed Flood Insurance for Commercial Real Estate California

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What protections does lender-placed flood insurance provide?

Lender-placed flood insurance normally insures the lender’s financial interest in a commercial property. 

Coverage usually applies to a fairly standard list of abnormal water events, which might include floods, mudslides (e.g. for properties in the Sierra Nevada Mountains along California and Nevada), and rogue waves (e.g. for properties on the California, Texas or Atlantic coast). Sometimes coverage terms can vary, however.

An insurance agent who knows flood policies, including lender-placed and NFIP policies, well can review exactly what events a particular lender-placed policy should cover.

When do lender-placed flood policies begin covering a commercial property?

According to the 2015 Flood Rule, lenders generally must issue a 45-day notice informing owners that they don’t have sufficient flood coverage. A reminder 15 days before is also usually required.

In most cases, lenders can only get a lender-placed flood policy after the required notices and waiting period. Additionally, lenders generally have to cancel a force-placed policy within 30 days of the property owner obtaining adequate coverage.

Again, an insurance agent who knows force-placed commercial flood insurance and/or an attorney can help make sure lenders follow all legal requirements.

Who pays the premiums for a commercial property’s force-placed flood coverage?

The premiums charged for lender-placed flood policies are usually paid for by the property owner, possibly a business or investor in the case of a commercial property.

Lenders are usually able to pass on the cost, often as part of a monthly loan payment, because property owners typically are in violation of a loan’s terms if force-placed is needed.

How are claims filed on fore-placed flood policies?

Filing a claim against a lender-placed flood policy is fairly straightforward. The lender normally files a claim with the insurance company, providing all necessary documentation. Once the claim is confirmed and payment determined, the payment is issued directly to the lender. 

Because force-placed coverage is mainly for the lender the claim payment goes to the lender (and not necessarily the property owner) in most cases. Whether the lender receives compensation for their stake in a property, or a higher replacement cost payment, depends on the terms of the policy they’ve chosen.

An experienced insurance agent can guide lenders through the process of filing a claim.

Force Placed Flood Insurance for Commercial Real Estate California

How can lenders get force-placed flood insurance for commercial real estate?

If you’re a commercial lender who needs force-placed flood insurance for a property, reach out to the agents at QuieTrack Insurance Services. Our experienced agents have assisted many lenders with getting force-placed commercial real estate flood policies, and we have the expertise necessary to help you.

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