I recently had a closing on a property in a flood zone almost fall apart because, unknown to everyone, Congress decided to let the federal flood insurance program run out of money. After doing some research, I was dismayed to learn that since the program expired May 31, home buyers have been unable to buy or increase their flood insurance coverage, and many lenders are unwilling to close on properties in flood zones until the program comes back online. When, or if, that may occur is anyone’s guess. Luckily, in my transaction we were able to transfer the seller’s existing policy to the buyers so the deal closed. But others aren’t so fortunate. Researchers estimate that for each day the program remains in limbo, approximately 1,400 closings for home purchases must be delayed, according to the National Association of Mutual Insurance Companies in Washington.
The National Flood Insurance Program Runs Out Of Money
Flood insurance is funded through the federal National Flood Insurance Program (NFIP). Congress appropriates funding for the program, but it inexplicably allowed the program to lapse for the fourth time in a year when lawmakers took the Memorial Day holiday without extending coverage. This lapse comes at a precarious time for lenders, owners, and buyers alike as forecasters are predicting a tumultuous hurricane season and buyers are pushing to close quickly in order to qualify for the first time home buyer’s tax credit.
Consumers with existing policies will not be affected and therefore will not see any interruption in their payments, said Rachel Racusen, a spokeswoman for the Federal Emergency Management Agency. However, renewals or increased coverage requests will not be processed unless Congress decides to renew the program. This means most closings on flood zone properties are in limbo until the program funding is restored.
Flood Insurance Tips
If you are selling or buying a property in a flood zone, you need to deal with this situation well in advance.
- Buyers and their Realtors need to verify whether the property is in a flood zone in the first place. Here is the link to the FEMA Flood Zone Maps. Lenders will require a flood zone certification, but with the program out of money, you need to know way ahead of time.
- Buyers need to address flood insurance with their lender right after they decide they want to purchase a flood zone property.
- Sellers should contact their insurance agent to see whether their existing policy can be transferred to a new buyer.
- Contact your Congressperson and tell them to restore the flood program funding! (Good news, Congress appears to be considering a bill to restore funding).
Thanks to Patrick Maddigan, Esq. and Suffolk Law student Katherine Garavaglia for assistance with this article.