I feel for him. It is this kind of maddening injustice that drive some people over the edge and start shooting up places.

 

Any loan using his home equity as collateral would require the same insurance, so that's out. A loan against his 401K is possible, but probably a bad idea. According to the bank, the insurance must be from FEMA, so he can't go to any agent/broker. According to FEMA, the bank is supposed to review each case and make a judgement based on elevations recorded in town records. Those records show his house at 1 foot above the 100 year flood. The bank is sticking to their standard procedure, which is "if any part of your structure touches the 100 year flood line on the revised FEMA map, you need to insure your whole house". Their only concern is the safety of their loan. His only weapon is to put that safety in question by threatening default. Is it worth a foreclosure to them to stick to their own internal rule? He has offered to insure the garage, which is the only thing that actually touches the line. The bank refused that. They have him backed into a corner and his only weapon is the threat of default. That may hurt him more than the bank, but he is now on a mission. The cost to him would probably total about $7,400 for three years insurance until he can pay off the loan plus the elevation certification. Seems like a lot to make the bank feel safe about a $40K loan.

 

If he's really gung-ho about not paying the insurance, he should at least pay the original loan amount and short them on the additional amt they're charging for the flood insurance. It will at least prolong his fight.

Since he's got his cars paid off, he could take out used car loans on those to come up with a couple grand. The rates for car loans are just as cheap as a mortgage, so depending what he's got, he could get a chunk of cash from those to speed up the house payoff.

 

The saddest part is if the house were TOTALLY destroyed....the lot value would probably still well collateralize the outstanding balance. I appreciate the situation.

Defaulting will cost him far more the 7800 though.

 

nope...as a banker I'm interested in current exposure.....

 

^ Speaking of hows the job market Jeff?

 

better than I thought...

 

^ awesome!

 

An insurance broker can get you a quote from FEMA. I know, I got one.

If the guy works, why can't he get a loan for $40k? Especially if he directs the lender to pay off his mortgage, which keeps him debt neutral.

Why not take it against the 401K? You just pay yourself back. If he doesn't think the loan against the 401K is worth the $1800 annual premium he would save, then he should just pay the premium.

How much coverage does he need? Why not just buy $40K in coverage to pay off the bank in case of flood?

Who said a personal loan using the house for collateral requires flood insurance? Has he talked to other banks and lenders?

 

Let me think this through. He defaults on a loan with a $40k balance; the bank figures they can auction the place off for much more than that in foreclsure, returning the difference to the debtor. Hmmmm...

Your friend needs to have a lawyer interpret the "fine print" in his mortgage agreement. Remember, we're talking about the law here; "fair" has nothing to do with it.