Flood Insurance

A Rising Impediment to Home Sale and Purchase

On April 1st Federal Emergency Management (FEMA) and National Flood Insurance put Risk rating 2.0 into use. They termed it “Equity in Action”, an interesting term for an attempt to pull the Federal Flood Insurance program out of the historical bankrupt system that it is. “Equity in Action” is code words for big rate increases for buyers of coastal properties.

What Does It Mean?

For a new buyer if a property is in a Flood Zone, and they are using a mortgage in the purchase, they will require Flood insurance and those premiums under 2.0 have increased significantly. If there is no mortgage a buyer can choose to self-insure against the risk of flood.

For the seller being in a Flood zone can restricts the number of buyers that are appropriate to be able to purchase the property.

If the seller has a Flood Insurance policy in force, the new buyer can assume or take over that Flood policy at the current pricing. That Flood insurance policy is most likely a lower premium than the cost of a new policy. Assuming a current Flood policy does come with the 18% annual rate increase cap, which effectively over a 5 year period essentially graduates the buyer to the “new” policy costs.

Clearly the new 2.0 rating system, “Equity in Action” is not being well received by the 10 coastal states that have filed legal action against 2.0 and the rate increases. It is clear it severely restricts the sale of properties if a mortgage is part of the deal. But I’m not sure how you can sue the NFIP program that is already bankrupt and annually has to be bailed out by Congress.

If you have concerns or questions about a Flood Zone or cost drop Kyle an email at kshepard@shepardinsgrp.com or call 203.698.9342 for the intel.