Flood Insurance Update: The Chaos Is NOT Over!
As most of you know, the Biggert Waters Flood Reform Act of 2012 (the “Old Act”) went into effect in October 2013 and started causing all kinds of chaos with flood insurance premiums (What the HECK is Going on with Flood Insurance Premiums?). As of May 1, 2014, the Homeowner Flood Insurance Affordability Act of 2014 went into effect (the “New Act”). Many of you may believe that this New Act stops the chaos caused by the Old Act – IT DOES NOT! The New Act simply provides a short term (4 year) roll back of the provisions of the Old Act that pertain to primary residences. For secondary homes, rental properties and other severe loss properties, they will continue to move to full risk rating over the next 4 years and if you cannot prove that it’s your primary residence, then the gradual increase will apply.
The New Act states that pre-firm (subsidized) rates will continue to be allowed for primary residences (defined as living in the home 80% of the time). The New Act simply kicks the can down the road 4 years until an affordability study can be completed, regulatory framework built and presented to Congress. If a new law is not enacted, we go right back to the Old Act – the original chaos returns.
The biggest risk remains for those homes that lie below the FEMA map requirements. Realtors and buyers must be cautious of a home that is under the requirements now, because those homes will still be under requirements down the line. The risk to the buyer is that he/she does not know what the rate structure will look like 4 years from now.
So what does this all really mean? STAY THE COURSE. As a buyer’s agent you need to continue to ask the seller to provide a finished floor flood elevation certificate before due diligence expires. Why is that still necessary you ask? Because if your buyer thinks he or she has nothing to worry about because the flood insurance quote he/she gets today is reasonable, that same buyer may be calling you 4 years from now in tears when the flood insurance premium drastically increases.
Note: If the home is in an X zone (meaning flood insurance is not required for a loan), there is nothing really to get other than confirmation from your buyer’s insurance agent that the property is in fact in a X zone. Keep in mind, and there is nothing you can do about it, that the flood maps may change a few years from now and a property in an X zone today may move into a special flood hazard area.
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