FEMA’s action causing many homeowners to drop flood insurance

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Devine St. and Crowson Rd., Columbia, SC during the “1000-year flood” of 2015

If you have clients who are complaining about the rising cost of flood insurance, there may be a good reason for those complaints. This issue came to my attention through The DIRT listserv which I have recommended to South Carolina dirt lawyers several times. If you haven’t already, subscribe to this listserv for interesting discussions of current real estate topics.

In 2021, FEMA announced that the National Flood Insurance Program (NFIP) was shifting to a risk-based premium system. The new system is called Risk Rating 2.0, and it attempts to base premiums on the actual characteristics of individual properties rather than simply referring to “flood maps”. I’d like to refer everyone to this article from ClimateWire dated August 27, 2022.

According to the article, FEMA’s shift was intended to encourage more homeowners to buy flood insurance by showing more precisely the risk that each property faces of being flooded. The shift has apparently caused the opposite result. Many homeowners have dropped FEMA flood insurance based on increasing premiums. It should be noted that many premiums were also reduced.

Closing attorneys understand all too well that properties in high-risk flood zones require flood insurance if the property owners obtain federally backed mortgages. The individuals who are dropping the coverage are not those who have such mortgages. Many of the individuals opting out of flood insurance because of increased costs are low-income individuals in coastal areas.

The article states that the number of NFIP policies dropped from 4.96 million in September of 2021 to 4.54 million in June of 2022. The declining numbers cause concerns that owners whose homes are flooded will not be able to rebuild or recover financially, and that low-income households will suffer the most.

FEMA told the reporter that many factors could influence the drop in policy holders, including the economic impact of the pandemic, inflation, the housing market, and the affordability of purchasing flood insurance from the private market. It is not clear how many people who dropped NFIP policies have bought flood insurance through private insurers. In other words, FEMA does not consider that its change in premium calculations is the sole cause of the problem.

We need to pay attention to this issue as Congress wrestles with possible solutions. It is certainly dangerous to have flood insurance priced in a way that fails to protect low-income homeowners who live in the most precarious areas geographically.

SC Real Estate Lawyers: Prepare To Advise Clients Struck By Disaster

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 _SC Flood 2015Our hearts are breaking for our family members, friends and neighbors who have lost so much in this flooding disaster. Charleston and Columbia and the boroughs, towns, cities and counties between will rebuild, but it will take time, resources and patience. Many have lost everything and are without insurance coverage because flooding was so unexpected in many areas. Many are without power and water. Many are in shock. And we are being told the flooding will get worse before it gets better.

For those of us old enough to remember, this disaster feels incredibly like the aftermath of hurricane Hugo in 1989. As I think back to the beautiful areas in South Carolina that were hardest hit then and reflect on those areas today, it seems that almost all of them are better and stronger and more beautiful than they were before the disaster. South Carolinians are strong and resilient, and we are stronger today than we were yesterday.

Dirt lawyers are in an exceptional position to support clients who are not familiar with the assistance that may be available to them. I challenge each of us to educate ourselves to be available to offer the valuable advice that will be needed in the days, weeks and months to come. I am not knowledgeable on these topics at this point, but I am beginning to learn today and will pass information along via this blog. If anyone already has a wealth of information and is comfortable with sharing it, please pass it along to me, and I will get it out. Here are a few points I’ve learned so far.

_SC Flood 2015 2The U.S. Department of Homeland Security’s Federal Emergency Management Agency (FEMA) has announced that federal emergency aid has been made available to areas affected. President Obama authorized FEMA to coordinate disaster relief efforts and to identify, mobilize and provide, at its discretion, equipment and resources necessary to alleviate the impacts of the emergency. W. Michael Moore has been named the Federal Coordinating Officer for the federal response operations in the affected area. For more information, go to www.fema.gov.

Governor Hailey has announced that South Carolina will act closely with the federal government to protect the citizens of South Carolina. At this point, the State is dealing with road closures, emergency responses, and water power issues, but announcements are already being made about disaster relief. We should all remain vigilant about ways our clients may obtain assistance.

Clients should begin now to make inventories and take pictures of damage. FEMA teams are on the ground now and will (slowly) begin to work with individuals and businesses. Clients should get in touch with their insurers as soon as possible.

Those with mortgages should contact lenders who may provide relief in the form of loan modifications, restructuring, temporary suspension or reduction in payments, waivers of late payments and/or suspending delinquency reporting to credit bureaus. To begin researching some of the options your clients may have, check out Fannie Mae’s site: http://knowyouroptions.com and Freddie Mac’s site: https://ww3.freddiemac.com. The U.S. Department of Housing and Urban Development (HUD) provides a 90-day moratorium on foreclosures of FHA-insured home mortgages following natural disasters as long as the property is:

  • within the boundaries of a presidentially declared disaster area, and
  • the property was directly affected by the disaster.

The time period may be extended if:

  • the disaster affects a large area, or
  • is especially severe.

If a client’s property was not damaged by the disaster, but the disaster did affect his or her financial viability, your client might also qualify for a moratorium.

During times of natural disasters, the Veteran’s Administration (VA) encourages lenders and servicers to:

  • establish a 90-day moratorium on initiating new foreclosures, and
  • help individuals affected by a natural disaster by offering forbearance or modification of veterans’ loans.

Advise clients to gather information like credit reports, proofs of employment and income.

_SC Flood 2015 3Unfortunately, some clients may need to be advised to contact a bankruptcy lawyer. Chapters 7, 11 or 13 may be alternatives that should be considered, depending on circumstances. I always tell real estate lawyers that they should know just enough bankruptcy law to know when to call in a bankruptcy practitioner. This may be one of those times for numerous clients.

Let’s rise to this occasion, real estate practitioners, and provide the best advice we can for our clients who are in dire need at this time.