Selling Guide

Published April 07, 2021

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What are the flood insurance requirements for units in a project?

Requirements for a Unit in a Project Development

When a mortgage loan is secured by a unit in an attached condo or co-op project and any part of the building improvements are in an SFHA, the seller/servicer must verify that the HOA or co-op corporation maintains a master policy of flood insurance. The premiums must be paid as a common expense, unless indicated otherwise in the table below.

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

Project Type Coverage Requirements
Condo The seller/servicer must verify that the HOA maintains a Residential Condominium Building Association Policy or equivalent private flood insurance coverage for a condo building consisting of attached units located in an SFHA. The only building that must be verified is the subject unit’s building.

Fannie Mae does not require evidence of a master flood insurance policy, provided the unit owner maintains an individual flood dwelling policy that meets the coverage requirements of this Guide for the following mortgage loans or project types:

  • high LTV refinance loans,
  • units in a two- to four-unit project, and
  • detached condo properties.

A master flood insurance policy maintained by the project, must cover the subject unit’s

  • entire building including each of the individual units in the building; and
  • all of the common elements and property, including machinery and equipment that are part of the building.

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

  • 80% of the replacement cost, or
  • the maximum insurance available from NFIP per unit (which is currently $250,000).

If the master flood insurance policy meets the minimum coverage requirement of 80% replacement cost, but the per unit coverage amount does not meet the requirement for mortgage loans secured by one- to four-unit properties, as described above, the unit owner must maintain a supplemental policy for the difference.

If the commercial space of an attached condo is over 25%, coverage provided by the General Property Form (or equivalent coverage) is insufficient. A private policy will need to be maintained by the HOA or a private policy in conjunction with a General Property Form policy (or equivalent coverage) to equate to coverage requirements for projects eligible for a Residential Condominium Building Association Policy.

The contents coverage must equal the lesser of 100% of the insurable value of all contents owned in common by the association members or the maximum amount available through the NFIP.

For additional information on named insured requirements that apply to flood insurance policies, refer to B7-3-04, Property Insurance Coverage for Units in Project Developments .
Co-op

The co-op corporation must have flood insurance coverage for each building that is located in an SFHA. The master policy must cover the building and any common elements and property (including machinery and equipment) that are owned in common by the shareholders of the co-op corporation. The coverage amount for the building must be at least equal to the lesser of 100% replacement cost, or the maximum coverage available under the applicable NFIP program.

For additional information on named insured requirements that apply to flood insurance policies, refer to B7-3-04, Property Insurance Coverage for Units in Project Developments .

PUD

The same flood insurance that is required for one- to four-unit properties is required for an attached or detached individual PUD unit. A stand-alone flood insurance dwelling policy must be maintained to meet these requirements.

For additional information, see B7-3-07, Flood Insurance Coverage Requirements.

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