Are they required to have Flood Insurance?

Do they really need it?

Let's address those questions today...

We've discussed Flood Insurance a few different times in the newsletter. Most recently, I did one on how condo buildings handle flood insurance, which was very well received.

I figured it's a good time to do another "back-to-basics" newsletter by outlining the NFIP and helping answer some of your buyers' initial questions about it.

As we did before, let's start out with some definitions:

NFIP - National Flood Insurance Program, created by Congress

in 1968 to address recurring significant property losses

due to flooding.

FIRM - Flood Insurance Rate Map created by FEMA (Federal

Emergency Management Agency) showing areas of

relative flood risk. FIRMs are updated periodically to

reflect changes in observed flood patterns, residential

and commercial development, roadway construction,

and other factors that affect an area's BFE.

BFE - Base Flood Elevation - level to which floodwaters have

at least a 1% chance of reaching during any given year.

Elevation Certificate - document completed by an authorized

surveyor, engineer, or architect that shows a building's

design, position on the lot or property, and lowest point

relative to the BFE.

Cities, towns, counties, and communities voluntarily participate in the NFIP by adhering to the floodplain management practices put out by FEMA and having their FIRMs updated periodically.

Unless there is mortgage financing on a property,

flood insurance is NOT required.

Flood Insurance is only required on financed properties

located in flood risk zones starting with "A" or "V",

as shown on the FIRM.

Most lenders now want Flood Insurance premiums escrowed

along with property taxes and other hazard insurance.

If your buyers learn only these 3 things from you about Flood Insurance, they'll know much more than most other buyers!

If a property is owned free and clear or is being purchased with all cash, the owner may choose to be "self-insured", personally accepting full risk and paying for all damages out of pocket.

However, all homeowners/hazard insurance policies specifically exclude flood damage.

Even when financing is not used, I feel Flood Insurance is a good idea for properties in those A and V higher-risk zones, especially if the first floor is not elevated.

Note: Rarely, HOAs in flood-prone areas will require individual owners to maintain Flood Insurance even if no financing is used.

So what determines Flood Insurance applicability and rates?

- Property location on the FIRM (flood zone risk)

- Type of construction (concrete block or wood frame; block,

poured, or piling foundation)

- Lowest floor height in relation to BFE, and building position

on property (Elevation Certificate information)

- Occupancy (primary residence or second home)

- Flood mitigation measures (flood vents, breakaway non-

structural first floor walls, elevated electrical service and

HVAC)

- Year built

- History of severe repetitive flood losses

OK, how do we apply everything we just discussed to a specific property?

The first step is to find the property on a flood map so we can determine the NFIP zone. The following sites can be used, these are clickable links:

Collier County:

http://apps.colliergov.net/dfirms/DfirmMap.htm

Lee County:

http://www.leegov.com/gov/dept/dcd/FloodMapping/Pages/default.aspx

Miami-Dade County:

http://gisweb.miamidade.gov/floodzone/

Anywhere in the US:

https://msc.fema.gov/portal

Remember, Flood Insurance is only required when there's financing involved and the property is in a flood zone starting with an "A" or a "V".

If your subject property is not in one of those zones,

Flood Insurance is not needed - even when financing is used.

If the property IS in an A or V flood zone, we need an Elevation Certificate to see the BFE and the lowest floor's relationship to that BFE. Since ECs are usually done along with a survey, the seller or property owner may have one. If none can be found, a new one will be needed.

At this point, it's time to turn things over to an insurance agent trained and experienced in the NFIP and how it relates to South Florida properties. He or she can then give your buyer or homeowner an idea of premium costs.

And there we are, a brief overview of Flood Insurance basics to help you answer buyers' questions.

Identifying flood zones and exposure is an important part of all residential lenders' risk management, which is how I get involved. It is yet another variable in qualifying the property along with the borrower on a mortgage loan.

Whatever questions your buyers may have, depend on me to provide them with the details they want and need to make an informed decision. Have them call me when they first start looking so we can let them know their financing options...

Let me reinforce the trust

your buyer has placed in you! sm