flood insurance

flood-insurance-new-bedford-guideNew Flood Insurance Rates and Map Changes To Drown Homeowners With Premium Surge, Subsidies To End 

I was recently working on a sale transaction in Wareham which went under agreement with no issues. As is common in that coastal area, the property is in Flood Zone with a subsidized flood insurance annual premium of around $3,000 which the buyer was willing to live with. However, during the underwriting process, the lender advised that under new federal flood insurance map and rate changes, the property was not only in a higher flood risk elevation zone, but would also lose its subsidy upon a sale, with a new premium running a whopping $55,000 — a 1700% increase! Needless to say, the sale sank to the bottom of Buzzards Bay, and the current owner is left with a significantly devalued property.

The culprit for this storm surge is the Biggert-Waters Flood Insurance Act, which was passed after Hurricane Katrina. Under the new law, many homeowners will grapple with a double-whammy of costs — first, because their homes are no longer above base flood elevation, and second, the Act will eliminate the grandfathering of properties that were allowed to use old flood-risk data, and will end subsidies for certain types of properties. According to most projections, flood insurance premiums have the potential to increase by 25% per year for many, and for some, exponentially — like my Wareham client. Furthermore, many additional homes have been placed in the high-risk flood zone for the first time, and if the owners have mortgages, they will be required to buy flood insurance.

According to the Boston Globe, the changes will have widespread impact along coastal communities. For example, in Marshfield, roughly 1,500 homes are located in the expanded flood zone, and in Scituate, about 500, according to local officials. Coastal towns have been scrambling over the last several months to assist affected homeowners and petition Congress and FEMA to help, mostly to no avail.

Property owners have the right to appeal their inclusion in the flood zone, but they have barely more than six weeks left to do so. The deadline is Oct. 17 throughout the county. For an appeal to be successful, the owner would have to prove, with professional documentation, that the elevation is different from what the maps indicate. That’s a high burden and very costly to boot.

This situation has real potential to drown listings and sales along the affected coastal areas. I’ll be monitoring this looming storm in the weeks ahead. Stay dry!


Update: Congress Restores Funding to Flood Insurance Program Through Sept. 30!

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.

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