While visiting a new-home development on Siesta Key a few days ago, my interview with the builder was interrupted by a middle-aged couple who stopped their car in front of a beautiful new house. Not far away, wavelets on Little Sarasota Bay lapped at the shore. “Excuse me,” said the builder, turning toward the potential buyers. “Certainly,” I replied. “Business first.”
He walked up to the buyers and was greeted with, “What is the flood elevation?” So as Congress ponders what to do about the unintended consequences — possibly foreclosure-inducing premiums — of the Biggert-Waters Flood Insurance Reform Act of 2012, one thing is for sure: Flood insurance is top of mind for many home buyers. Particulary, is it required, and how much will it cost?
In the meantime, several readers have sounded off about flood insurance and the sharply higher premiums that threaten our economy:
Construction
“Harold,
“Most people understood that premiums would definitely be affected, but things are not looking good for people trying to sell non-conforming structures. It remains to be seen how it will affect construction; with this change, I think we will see the prices come down on non-conforming structures where it becomes more palatable for buyers to tear down and start new. I think we’ll see many more demo permits being pulled in the coming years.”
— Ricky Perrone, Perrone Construction, Sarasota
Home-equity loans
“Good morning, Mr. Bubil,
“I think I know the answer to my question, but haven’t actually seen it in your (and others’) coverage of the Biggert-Waters Flood Reform Act. Later this year, I’ll have paid off my mortgage. As I approach retirement, I had planned to have some type of “safety net” in the form of a reverse mortgage or HELOC, to cover large, unanticipated expenses.
“I’m now guessing that having even an untapped equity credit line is going to come with these new, very high, insurance costs. Have you heard anything about this? I suppose many pre-retirees are finding themselves in the same situation. Any light you could shed would be appreciated.”
— Name withheld, Sarasota
In response: If you have a loan from a federally regulated lender and that loan is secured by your home, and the house is in a Special Flood Hazard Area as declared by FEMA, flood insurance is required. An equity line of credit can be tricky if it is untapped or only partially drawn down.
According to the FDIC, home-equity loans fall within the insurance purchase provisions of the Flood Disaster Protection Act of 1973.
If there is no flood policy, states the FDIC, “the borrower must, at a minimum, obtain a policy as a requirement for drawing on the line.” To comply with the FDPA, a lender may review its records periodically “so that as draws are made against the line or repayments made to the account, the appropriate amount of insurance coverage can be maintained; or, upon origination, require the purchase of flood insurance for the total amount of the loan or the maximum amount” of insurance coverage available ($250,000), whichever is less.
Faulty elevations
Regarding FEMA’s flood maps: “While its intentions were understandable, implementation by the behemoth agency was predictably disastrous. By employing old data, old maps, and unreliable contractors, FEMA produced new floodplain maps that are inaccurate to the point of being ridiculous. The result has been that if you own a home remotely near a river, lake or the sea, as so many in Florida do, be prepared to pay between $800 and $4,000 in what can only be called a ‘FEMA tax’ because of their shoddy work. — David McGrath, Fort Myers
Modest mortgages
“Dear Harold,
“This flood insurance concern is definitely going to affect the average person on the street with a mortgage.
“It already has — flood insurance renewals started, as of Oct. 1, 2013. I am hearing about modest homes in Englewood, North Port and South Venice reporting new annual flood insurance premiums from $3,000 to $6,000. These owners, with mortgages, do not have a choice. They must pay it.
“But many simply will not be able to — and the question becomes, will they just walk away?
“People talk about the next wave of foreclosures — the so-called shadow inventory — and perhaps the abandonment of mortgaged properties due to impossible flood insurance rates will actually be that next wave. Maybe that’s what is lurking in the shadows now.”
— Charryl Youmans, Realtor, Venice
