List of lenders who don’t require HOA to carry flood insurance?

Question

Hi, sis is selling a condo rental, the sale fell through because buyers’ lender requires for HOA to carry flood insurance (which the HOA doesn’t have and don’t plan to have in the future) as the property is located in the flood zone (in Scottsdale, AZ where it rains a little every 100 years, give or take). I’m looking for a list of competitive lenders that don’t/won’t require HOA to have this flood insurance so that sis could pass on to buyers to save some time. Any advice on how to deal with this obstacle would be much appreciated!

Robert Murphy · Answer

@Sofiya Cherni, Great question I actually know of quite a few of our clients that are looking for help and are in your same boat in regards to flood insurance (pun intended). This is a very confusing issue with residential condo associations, their board members and Condo Association across the board.  in regards to flood insurance, getting a federally backed loan, federal law, and Flood insurance.

It seems that many condo HOA's have decided that flood insurance is one of the first things to cut on the budget. For too long, flood insurance has been associated with mortgage requirements, rather than a prudent measure of protection against a catastrophe that many property owners would not rebound from without coverage.

According to a 2018 study, led by the University of Bristol, far more are at risk of flooding than regulatory flood maps have determined. This study estimates 41 million Americans are at risk from flooding rivers, which is more than three times the current estimate of 13 million people, based on regulatory flood maps. Using high-resolution maps of the entire country (vs. the 60% utilized by FEMA), a greater focus on the potential flooding of rivers and streams, and more precise estimates of actual dwellings, this study predicts more than 60 million Americans may be vulnerable to a 100-year flood by 2050.

But I am not responding to your inquiry simply to just educate around flood insurance, I do happen to have a fair amount of experience in the insuring of these types of policies, what will happen if the HOA doesn't have a master residential flood insurance policy usually referred to as an RCBAP is lenders will not be able to offer a loan to any potential buyer. Sellers won't be able to get a fair market price due to the only offers that they will get will be from all cash buyers which usually are investors who are not looking for these condos for personal use but rather an offering in their rental offering. When there is a void of buyers due to the need to finance there will be a reduction in what the seller could / would get. I believe @Randy K - you nailed it, it would be most helpful for you to work with your Board members and convince them to get a master policy this will be in the interest of all in the HOA.

Two things to the Board members should consider is that they could be fiduciarily responsible individually (and the D&O likely will not cover this) because they have the responsibility to ensure that the property and shared interest in the building by maintaining the required insurance. Also, some aggressive investors could hold such a controlling share in the HOA through the number of units they own, an that they can and often do influence more than a collective units share on the interest of the HOA. GOD forbid there be a flood at the property that is uninsured or underinsured because we have seen the litigation nightmare pull the community apart. I wrote a few blog post on this on my site but last time I linked I got a nice note from Bigger pockets that they removed my post for self-promotion so if you are interested send me a personal message.

@Randy K, wow floods happen right? We only work in flood insurance and have over five thousand clients and you know most of them to believe to their core they will never flood.... thanks for helping me get out the word. Those photos are real and not photoshopped, right? One of the challenges faced by carriers and agents, to capture this market, is changing the perception of flood. The market still views it largely as a means of compliance rather than necessary risk mitigation.

@Ryan Swan might be a good investment strategy to make a run at some of these uninsured or underinsured HOA's. You could get a good price. You are absolutely correct no mainstream lender will offer a loan for a residential condo unit with a master policy this is because of federal law and that they get stiff fines and or removal of funds if they don't comply with federal law - even if they disagree or don't understand it. I have found that most lenders are risk adverse and don't want to mess up with the FEDERAL government in regards of LAW. We have EVEN found private lenders that are not federally backed are requiring flood coverage (because well it makes sense) reviewing the photos again...  YOUR FLOOD NERD

Ryan Swan · Answer

@Sofiya Cherni out of curiosity....is the condo in South Scottsdale in the Granite Reef flood plain? I've seen those pop up on the market a few times and always with the disclaimer that the HOA does not carry flood insurance.

I'd honestly be surprised if any mainstream lenders would underwrite a loan on a property in a known flood plain without flood insurance.

Can the buyer of the condo purchase their own flood insurance policy in lieu of the HOA maintaining coverage? Maybe your sister could offer to pay a fixed amount of money towards the buyer's closing costs which would cover the flood policy for the first year?

Flooding is a real issue here in Maricopa County....it may not rain often, but when it does rain it often downpours a tremendous amount of water in a short amount of time.

Jena Richards · Answer

@Robert Murphy Came across your response and thought HEY! FLOOD NERD .. I just requested a quote from a flood ner… oh wait.. it was you lol

Rich Tirado · Answer

@Sofiya Cherni - I been in that situation. Your usually wasting your time trying to convince the HOA board to acquire the insurance as this might not affect all the unit owners the same way (Non mortgaged owner and/or lower mortgaged owners and the elevation of the specific unit's LAG in relation to the flood maps BFE). I would contact an engineer and get a elevation certificate and try to apply for a LOMC FEMA letter to remove the structure from the flood requirement.

Wayne Brooks · Answer

I’m guessing an individual can’t get flood insurance for the “building structure” since they don’t own it.  It is a bit short sighted on the associations’s part, it definitely has an affect on property values when you eliminate traditional financing.

Randy K. · Answer

Naturally, if she's selling the property, any potential floods won't be her issue, however... As @Ryan Swan mentioned, flooding is a legitimate problem out here. And it's likely far more often than you may imagine. My vote would be to opt for flood insurance, even if independently obtained since the HOA doesn't seem interested. Better safe than sorry.Did the bank specifically state the HOA needed to be the one with the policy? Or would the buyer getting a policy of their own meet the lender's requirements?I'm sure your comment about Scottsdale's rain was tongue-in-cheek, but for reference, here are some fairly recent examples (two from this year!):September 2014:

August 2018:

October 2018:

Robert Murphy · Answer

@Jena Richards thanks. I just sent you an email. cost looks good. we can keep digging to make sure that is the best we can do for your flood.

Sofiya Cherni · Answer

Thank you for your replies! Still hasn't sold. I believe it is in South Scottsdale in the Granite Reef flood plain. HOA made it clear that carrying this insurance in the future is out of the question. I believe her only two options are either an all cash buyer or someone with 20% down, which many don't seem to have. So far I believe 3 deals fell through due to this fact and as one of you mentioned before she's having to lower the price. She's not happy with current realtor representation, one of her friends (who normally doens't work with friends at all) offered to help sell it, which we're hoping will help. If it were up to me I'd put in the listing "cash only" or "must have 20% down" to avoid wasting time on deals that will fall through but wasn't sure if it's a discriminating request...

List of lenders who don’t require HOA to carry flood insurance?

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