UPDATE: new purchases can now assume the homeowner’s current rate. See this post for more info.
I recently attended a long seminar hosted by our local board of Realtors on the topic of major flood insurance changes. Evidently, flood insurance requirements, the amount flood insurance holders pay, regulation, and the map being used has changed tremendously in the last year. Unfortunately, much of this information has been kept very quiet until now.
The biggest change to be aware of is that flood insurance rates are likely to be significantly higher than in the past, starting October 1st, 2013. Homeowners who previously had insurance and are current on their insurance premiums will enjoy previous rates. However, new policies or after a lapse in payment, all premiums will be rated at the new premium rates. And, FYI, if you haven’t been paying for flood insurance but you are required to, new regulation will fine the mortgage holders for not making sure you are carrying flood insurance, so expect to hear from your mortgage holder.
All government-backed mortgages that are issued are required to have flood insurance if the property is located in a flood zone. However, all property owners are eligible for elective flood insurance, even if the property is not technically located in what is deemed to be a flood zone.
How do you find out if you are located in a flood zone? Typically the loan officer will require a flood certification, which means that, as part of the loan process, the loan officer will contract with an agency that will do a search to find out if the real estate is located in a flood zone. However, according to the NFIP (National Flood Insurance Program) coordinator at the Oregon Department of Land Conservation and Development, many times the flood zone determination by the contractor is incorrect. In cases such as these, she recommends that you ask for a manual determination (the contractor will need to actually look at the flood map). If the determination is questionable, you can ask for a Letter of Determination Review, or a Letter of Map Amendment.
Unfortunately, if the current homeowner is not aware that the house is actually in a designated flood zone, the prospective purchaser may not find out until well into the closing process. The NFIP coordinator said that, in order to find out sooner if you are located in a flood zone, you can try searching google earth. Of course, you’ll need to install Google Earth on your computer, and you’ll need to bring up the flood zone overlay. Also, you can head to FEMA map services center and download the file for your home (though, these maps are difficult to navigate).
If the homeowner is aware that the property is in a flood zone, it is recommended that a recent Elevation Certificate be performed. One of these certificates is required before an insurance agent can write a policy for flood insurance.
The great news for those facing these premiums is that there are retrofits that can be done in order to save money on premiums. You can have flood vents (such as “smart vents“) installed if there are currently none. Gail Moldovan with Hagan Hamilton Insurance Services heads an Oregon NFIP “Reducation Team” which specializes not only in writing flood insurance policies across the U.S., but helps client find mitigation solutions!
So what is the Realtor’s role in flood insurance? We are required by law to disclose if we have actual knowledge of a history of flooding on the property, or if the property is located within a flood zone. However, we are not required to make investigations as to whether the property is located in a flood zone. For liability reasons, the investigation is left up to the buyer.
One more thing of note that came from the meeting: Jay Wilson, the Hazard Mitigation Coordinator for Clackamas County, brought in photographs of a local river that flooded a few years back. The point that he wanted to make very clear was that the three homes located near the river were not located in a flood zone, which means that the homes were not required to have flood insurance by any agency. The unique thing about this situation is that Sandy river actually moved its course, by several feet! I asked Jay how far a river can actually travel, and he says that if you look on the maps, sometimes a river can move a matter of several blocks, placing a river inside a subdivision where there used to not be one.
In this case, one of the homes actually did have flood insurance, and the homeowner received a quick settlement. The other homeowners lost a tremendous amount of money. So, just because the home you are considering may not be located within a technical flood zone, it may be a good idea to obtain flood insurance anyway, especially if you are located next to a river such as the volatile Sandy River.