Responsibility for determining and disclosing flood plain?

Question

This is Alabama - buyer beware state.

It looks like the investment property we purchased is in the "mandatory insurance" flood plain - 1% annual risk. FWIW, cash deal.

When I worked with my realtor to write in contingencies, I had listed that the property must not be federally required to have flood insurance.

The buyer and her agent (sisters) stated it was NOT in a flood plain.

When I purchased insurance, the agent did not mention it.

During the entire time of this 6 week process, it was not mentioned.

However, when I pulled the mail from the mailbox, there was a letter from the city from November 2015 where the property was in the flood plain and the FEMA website also has it at high risk.

Other than the fact that it's a trust no one situation and we should have asked ourselves, who would have normally been responsible for verifying this information?

Mike Hibbs · Answer

@Jennifer McCollum Investor in Hampton Cove area, decided to not get flood insurance.  (Cash purchase)  Other person in Blossomwood, got flood insurance for ~$700yr I believe.  It was less expensive than anticipated, due to replacement costs of particular home.

How do you know the flood plain touches the structure?  Has a flood elevation survey been done?  I have used WIlliam Hill for this, and was satisfied with his work.  IF he determines the property to be in flood plain, BUT the structure not to be you may be able to be removed for insurance purposes.

Jeffrey H. · Answer

This is one of the first things I check on all properties that I invest - before I even make an offer.  And many states only require accurate disclosure for residential, not commercial properties (not sure which Alabama is here, but sounds like no disclosure for anything required).

I have had some family members purchase a residential property in Colorado where the Seller's disclosure lied about some material facts (I think they stated the plumbing was in good working order, but they had covered up a known leak that caused a lot of damage).  This eventually went bad and took about 20,000 to address - there was a legal situation and my family members received full compensation for the Seller's coverup.

So irrespective of that story, your options are to:

• Keep the home and see how you can insure the flood risk (which will cost more than something in the 500 year or no flood plain) and then expect that over the years you will have to budget for a remodel due to a flood.  Anyone buying the property from you at a future date will also have to get a Flood Insurance policy from a bank, and this will be uncovered at that time - which may or may not kill the re-sale.
• You may have an option legally to undo the deal due to the Seller's inaccurate disclosure combined with your contract clause - I don't know the strength of your case based on your State's case law and statutes of limitation, so you will need to check with a licensed attorney in your state with this experience.
• Get a topographic survey to confirm the extent of the flood plain on your property.  There are times where flood plains are not accurate on the FEMA maps and this survey could uncover that - you can request the FEMA maps be updates using a LOMR or LOMA (I forget which it's called now) and then this become a non-issue.  The survey will run about $750 and updating the FEMA maps is usually a couple thousand.  This would save you money in the long run as it would reduce your insurance costs and then restore its ability for banks to loan without the flood insurance.
• Raise the home off the ground so that the floor is 12 inches (or more) above the base flood elevation.  If it's a home already on pier and beams this may not be a huge job...but if it's slab on grade probably not an option.
• Do nothing and pray it never floods (don't do this please).

I am developing a property in a floodway, 100 year, and 500 year floodplain and am having to spend a lot more on engineering and site preparation to get plans approved with the City and de-risk the site's flood risk.  I know it's not fun.

I wish you the best of luck getting this resolved.

Jennifer McCollum · Answer

Today's update.

Spoke with the city engineering department and confirmed the house is in the flood plain as of the 2014 re-mapping.  There is no existing elevation map for this location which also indicates it's never held flood insurance before.

She said it was likely given that the zone barely touches the structure that we could get a LOMA and be excluded from the high risk plain.

To do this, it would require a $400 survey to establish an elevation map AND the lowest point adjacent to the zone would have to be higher than the designated flood plain.

Likewise, if we were going to get flood insurance then the $400 survey would be required as well.

I have also verified that the seller's realtor knew about the re-zoning in 2014 because she gave estimates on the financial impact to someone who was in the new zone a mile away.  This is one of several highly unethical things she has done in this deal including trying to get the other offer to buy the home while we were under contract and having difficult negotiations over radon.

So.  I believe that when we are ready to sell this home in the future, we will pursue this course of action and attempt to have the LOMA removed.

And for additional information, we are going to have a drain put into the lot since it sort of collects water in the middle (slight concave).  We need a permit from the city of engineering department but there is no cost to do so.

Jennifer McCollum · Answer

@Mike Hibbs - if you look at the FEMA site map (I can't get it to load on work network), the blue (1% annual risk) goes halfway through the lot.  It just touches the corner of the house.  If you enter in the address on floodsmart.gov, it identifies it as "high risk" with mandatory insurance.

I'm waiting for feedback from the emails I've sent out today but may come back to you for more information about William Hill.

I do think we're not going to be able to get out from under it based on how the contingency was written.

My primary concern is about resale value and how much we will lose when we sell it down the road.

And again, thank you.

Jennifer McCollum · Answer

@Mike Hibbs - Indeed.  Further research tonight indicates that the flood plain changed in 2014 for this house (Dellbrook off Oakwood) so it was probably at the same time you experienced it.  How did being in a flood plain impact your investor?

@Jeffrey H. - Thank you for your reply.  Tonight, I emailed for a flood insurance quote (for ourselves and to also see the cost on future buyers), emailed my insurance agent with the benign question of "What did your research show when you looked up this address in a flood plain?" and lastly, have tagged my realtor with the path ahead for undoing the sale.

The flood plain literally touches the corner of the structure  so I am hopeful that perhaps this will somehow defuse this current situation.  It is also a somewhat positive fact that we just closed last Friday.

I am hopeful tomorrow will at least provide some direction on what the future holds.

In the meantime, I am going to bed a bucket of sad.  Slightly more educated bucket of sad, but sad nonetheless.

Responsibility for determining and disclosing flood plain?

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