I am glad you brought up the topic of flood insurance. Thanks to recent changes to the national flood insurance program, that has become an important topic for home buyers.
You don't need a major weather event such as a hurricane or tropical storm to have flooding. On occasion we get 10 inches of rain or more in just 2 days and it can cause localized flooding. Storm drains that can't keep up with the water flow or worse, clogged by debris, cause water to back up into yards and sometimes homes. It can happen.
The Homeowner Flood Insurance Affordability Act of 2014 is the new legislation that amends the Biggert-Waters Flood Insurance Reform Act of 2012,
My interpretation of the Homeowner Flood Insurance Affordability Act of 2014 (which guts sections of the Biggert-Waters Flood Insurance Reform Act of 2012) is that it does allow buyers to assume the current owner's flood insurance rate for the remainder of the policy. It then limits yearly premium increases to an average of 15% per year for 9 property categories listed by FEMA (most owner occupied homes would fall into one of those categories). It also stipulates that no individual policy holder will pay an annual increase of more than 25% on non-primary residences[I] until actuarially sound rates are achieved[/I]. The annual rate increase cap is 18% on post-FIRM built homes.
They may have capped the annual increases on the premiums [I]but they did not cap the number of years the rates can go up.[/I] FEMA also sent out notices in April of this year to insurance agents notifying them that the actual cost of individual flood insurance policies could change later on as FEMA solidifies it's long-term rules under the amended flood insurance legislation. Something to think about.
The revised flood insurance program changes also come with a $25 surcharge on all residential policies and a $250 surcharge on policies for all non-primary residences and non-residential properties covered. The flood insurance program is over $24 billion in the red, they have to start making up the deficit some way.
A big portion of the legislation concerns grandfathering. According to FEMA there are 2 types of grandfathering rules that are applicable and they do require property owners to meet specific requirements in order to participate under the grandfathering rules.
The first type of grandfathering has to do with flood policies that are already in existence and are being renewed. According to the bulletins I have read, the renewal policies must continue to be rated using the FIRM zone and base flood elevation (BFE) designated by the map that was in effect when the policy was originally written. However, there areconditions that apply -- the building must NOT have been significantly altered in a way that would make the lowest floor for rating lower than the BFE on the original FIRM. (For example, how many older homes have you seen on the keys where the lower level that was originally non-living space has at some point been converted to living space????)
The second has to do with a property owner who's home was not originally in a flood zone but changes to the flood maps now puts it within a designated flood zone such as AE. So the property owner now receives a letter from his/her lender that the terms of the mortgaged property now requires the homeowner to purchase and carry flood insurance on that property. The grandfathering rules will help this home owner keep the premiums more affordable as the policy rates will be based on the FIRM zone and BFE in effect on the date the building was originally constructed AS LONG AS it was originally built in compliance with the floodplain ordinances in effect at that time AND THE BUILDING HAS NOT BEEN SIGNIFICANTLY ALTERED SINCE (think 50% rule). Documentation must also be provided for FEMA to locate the property on the old map. However, properties that do not now have flood insurance buy may require it in the future because of map changes will eventually have to pay full-risk rates. The initially discounted rates will eventually over a number of years of rate increases find themselves paying the full-risk rates.
Anyone looking to purchase or sell any pre-FIRM built home should verify the current flood zone designation of the structure (not just the lot). If the home is in a designated flood zone then you should take into consideration any major remodeling that has been done, especially if the quoted living space does not match that provided by the property appraiser's office.
Diane Christner, Realtor, GRI, SFR, CNE
Tammy Hayes, Realtor
Re/Max Palm Realty