Possible purchase of a property in a flood prone area

[Mario Ruscovici]

I am about two weeks away from possibly closing on a duplex in a flood prone area on the south east Atlantic coast.  The price is reasonable and meets the 1% rule.  I have three issues on which I would welcome any feed back.  First, if there is a flood between now and the closing date, it seems like  the seller may have a property policy and a flood policy, but after closing, those policies will not cover any damage incurred prior to the flood, for me, the new owner.  Should I ask seller for "assignment of benefits" and to get those policy numbers now, call the insurers, and make sure that they will pay me for property losses if I decide to go forward with the deal? Second, all I have at risk of losing if I walk away from the deal is the cost of inspection and appraisal.  Maybe it is better to look for properties more inland? Third, the lender, which is hard money, has asked me to comment on a police report with incidents (all traffic related and mostly speeding), going back about fifteen years.  Although I have nothing to hide, this request seems disrespectful.  However it is unrealistic to find a new lender with less than two weeks to go.  Comments? Advice? Insights? Thank you!

[Caroline Gerardo]

Hard money lender is giving you his/her own cash. They can ask what they want, write the letter. 

NO flood policy is assignable. Get a quote for your own flood AND hazard policies which start on the day you close. Insurance is a cost you factor in over long term. Flood is going to happen, at some worst unknown time. If you don't have flood insurance you could lose the structure and no city/county/state does free clean up. 

[Mario Ruscovici]

Thank you Caroline.  I should have mentioned that there is a high probability of flood between now & closing date.  Thank you.

[Rod Hanks]

@Mario Ruscovici

You can't assign an insurance policy. If it floods before you close renegotiate or don't close and yes all you lose is the appraisal and inspection fees. I have never heard of a HML asking about tickets from 15 years ago that is very odd but then again they can ask for whatever they want. There are plenty of HMLs out there that can close pretty fast I might look elsewhere.

[Robert Murphy]

@Mario Ruscovici if the seller has an NFIP / FEMA policy they can transfer that policy to a new owner. The Private Flood Insurance markets don't usually do this however that being said all flood policies can skip over the waiting period if there is a loan closing so for your instance once the property transfers ownership on the closing you will have coverage if the agent set it up that way. Most insurance agents are generalists and not experts in flood insurance so most don't even know that you can transfer the NFIP policy from the seller to the purchaser let alone how to do this. As for flood or no flood every property, every structure is at risk of flooding even if they are not in a high-risk flood zone and some of these flood zones are more political than most people realize, my real meaning is that most of Houston (as an example) should be in a flood zone but selling homes that require flood insurance is a deterrent (especially if a new development) so maps get redrawn not giving the real risk this is why 90% of all the claims that came in from Harvy were in X flood zones which are considered low risk. But more importantly, lenders do not have to require flood insurance in X flood zones meaning properties are easier to sell. There are a few benefits to having to buy flood insurance if your property is in the higher risk flood zone as identified by a flood map usually identities with an "A" or a "V" first benefit is that communities are incentivized to do flood mitigation which could save areas from flooding, second is that property owners are not risking a flood risk exposure by not having insurance to cover the gap. Third, there are many options and if you work with a flood insurance expert they will shop all options. I have sold private flood policies and NFIP and always am looking for the client's bottom line to make sure that the cost is affordable if I can. The real factor you need to ask is if the home has ever had a flood before and if so get details and claim payout. If not as the wise @Caroline Gerardo notes floods happen only mother nature knows when and if it will ever happen. @Caroline Gerardo your profile picture looks great!!

[Caroline Gerardo]

Hard money lender is giving you his/her own cash. They can ask what they want, write the letter. 

NO flood policy is assignable. Get a quote for your own flood AND hazard policies which start on the day you close. Insurance is a cost you factor in over long term. Flood is going to happen, at some worst unknown time. If you don't have flood insurance you could lose the structure and no city/county/state does free clean up. 

NFIP policy is "transferrable" yes sometimes BUT, However: New buyer has to pay for the policy 30 days in advance of closing to avoid the wait gap. Our government (FEMA) manages the maps, and national insurance- you can also hunt for a private policy if available.

A way around the wait period is to apply for a FHA, USDA, GSE (federally backed) loan that requires the flood insurance. That does not apply to your hard money lender who is not selling to our government.

Another way is if the community flood map recently changed (last 90 days) then you get a waiver of the wait time but you have to pre-pay before closing.

The reason for the 30 day wait: a seller might know there is impending doom of a river/creek/ rising and purposely sell fast to avoid loss. Buyer be aware situation. Google satellite maps are helpful in visualizing how close subject is to risk but does not show which direction the flow will go. Water goes wherever it wants. 

Read more about New Orleans and Katrina, blocks of homes have not been restored 16 years later. 

more reading here from FEMA:

[Caroline Gerardo]

There is a great podcast called "Floodlines" by Vann Newkirk II / The Atlantic  listen to it in the car on your commute

[Cody L.]

Originally posted by @Mario Ruscovici:

I am about two weeks away from possibly closing on a duplex in a flood prone area on the south east Atlantic coast.  The price is reasonable and meets the 1% rule.  I have three issues on which I would welcome any feed back.  First, if there is a flood between now and the closing date, it seems like  the seller may have a property policy and a flood policy, but after closing, those policies will not cover any damage incurred prior to the flood, for me, the new owner.  Should I ask seller for "assignment of benefits" and to get those policy numbers now, call the insurers, and make sure that they will pay me for property losses if I decide to go forward with the deal? Second, all I have at risk of losing if I walk away from the deal is the cost of inspection and appraisal.  Maybe it is better to look for properties more inland? Third, the lender, which is hard money, has asked me to comment on a police report with incidents (all traffic related and mostly speeding), going back about fifteen years.  Although I have nothing to hide, this request seems disrespectful.  However it is unrealistic to find a new lender with less than two weeks to go.  Comments? Advice? Insights? Thank you!

I'm shocked that I've been able to grow my business with as different as I feel about these things (vs. everyone else)

If the property cash flows, I don't care if it's in a flood zone.  Why?  Well because if it's cash flowing WITH THE COST OF FLOOD INSURANCE BAKED IN, then why penalize it twice?  The fact it's in a flood zone = you need flood insurance = you have higher costs.   But if after that higher cost, it's still cash flowing then what worry is the flood zone?    It's either not going to flood (good), or it floods, you get insurance to cover the costs, and put a renter back in when done.

I don't know.  I have 1000's of units in flood zones (Houston) and it worries me 0.   If I happen to have flooding, I'll fix it, and go back to chugging along. 

In fact, be HAPPY it's in the flood zone.  That's freaking out other people, which is why you'll do well with the property.

Or I could be wrong.  Who knows. 

[Robert Murphy]

@Cody L.I like the way you think. And a property that is in a Flood Zone that requires flood insurance does keep some buyers away some people assume that because the flood insurance is required that the property must have flooded before that is not the case in most homes it just means that the core of engineers (that create the maps) think that the potential is there for flooding. We haven't even begun to address that many of the maps are 10, 20, 50 years old. So things could change and again only mother nature if a property would ever flood and although floods to happen and they are very devastating to most that experience one. I appreciate your bootstrap POV fix it go on. Thanks for the encouraging post. Flood nerd

[Guillermo Oyola]

The only issue I have with purchasing in a possible flood prone area is the insurance. Find out how much homeowners insurance will cost and if flood insurance is required how much that would cost as well. If keeping property as a rental then take those numbers into consideration. If flipping, then look at comparable sold homes that also require flood insurance. What do those prices go for and does the numbers still make sense?