Flood insurance $7000, on a $70,000 house?? Need advice please

Brian H. · 2013-11-22T09:42:45-08:00

All, I have owned a single-family home in West Virginia for 11 years, and have operated it as a rental for most of that time. I decided to get rid of it year and finally got it locked up under contract with a closing scheduled for November 12, last week. The day before closing the buyer's bank told me that the buyer had received a flood insurance quote of $7000 for the year. He had to back out of the deal and I'm stuck with the house again. Only now I have this outrageous flood insurance thing to deal with. All the time I've owned it, the flood premiums have been somewhere in the $700-900 range. This $7000 quote that he got from FEMA is absolutely outrageous and I have no idea who to turn to. I can't envision ever selling the house with this hanging over it and don't see a whole lot of point in continuing to operate it as a rental since it's never been particularly profitable and I'm just straight-up tired of trying to manage it from a distance. I owe $53000 on the mortgage and have considered trying to sell it for cash to an investor, but again with this kind of liability it's hard to imagine I'll have any success. Any and all suggestions are welcome.

Charles Morgan

Investor · El Paso/Socorro, TX · Member since 2012 · 365 posts · 75 votes

12y

$7000 does sound outrageous, could be a typo somewhere, contact your local agent for another quote.

1 Reply

Scott VandenBerg

Real Estate Investor · Holland, MI · Member since 2013 · 25 posts · 2 votes

12y

Brian, Could your current insurer transfer the policy to a new owner?

0 Reply

Jean BolgerPro Member

Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes

12y

This is the after-effect of hurricane Sandy, the recent Colorado floods, and other flooding/natural disasters. Many owners of flood plain homes will be in the same boat as you. All of us will end up paying a lot more for any insurance over the next few years because, unfortunately, the insurance companies are not charities- they have to make up those losses. And their actuaries are already looking ahead at the real cost of future climate instability.

1 Reply

Jassem A.

Investor · PA · Member since 2013 · 1k+ posts · 602 votes

12y

7000/yr is too high for insurance unless the house is a mansion. I typically pay between 250-700 per year per house. For 7000 you could buy enough material to build another house next to that house.

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Jon Klaus

Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes

12y

Why don't you shop policies and point this buyer or future buyers to what you have found.

I had a buyer this past summer claim he couldn't get insurance, but it took me one phone call to my great insurance broker to find it was insurable at a reasonable cost.

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Adrian Tilley

Residential Real Estate Agent · Broomfield, CO · Member since 2013 · 390 posts · 125 votes

12y

@Brian H. I don't think you have enough information at this time. You need to get an updated quote from several companies to see if the $7k figure it legit or erroneous.

2 Reply

Jassem A.

Investor · PA · Member since 2013 · 1k+ posts · 602 votes

12y

this site?

http://www.wvinsurance.gov/company/ListofWestVirginiaDomesticCompanies.aspx

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Colleen F.Pro Member

Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes

12y

Were you re-mapped ? The change is FEMA maps and the Biggert-Waters reform: http://www.floodsmart.gov/floodsmart/pages/bw-12.jsp have a huge impact on flood insurance rates. If you have insurance and keep it you have some grandfathering but not forever. It also treats second homes and investments differently. It does not suggest a good future for any properties in flood zones.

2 Reply

Lynn McGeein

Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes

12y

Brian, my understanding of the new flood insurance act is that new rates will be immediately imposed on new owners if they use a government backed mortgage that requires flood insurance. You, on the other hand, I believe, being the current owner not owner-occupied, will have 25% increases each year in your current rates until it reaches the proper amount or Congress changes the law that went into effect Oct 1, which is a possibility as too many people are screaming about the new rates. So you'll likely have time to find a cash buyer (flood insurance not required) before you ever have to pay that huge amount. The last area I was looking at buying turned out to be in the new flood zone maps, which is why I've been researching so much about this, as now I cannot afford to look there and need to re-evaluate. I've even recently heard that in places like Florida, private insurance is actually now coming back into the market and offering prices for new buyers much cheaper than the new government rates (although still much higher than the old subsidized rate.)

0 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

12y

My first thought would be to make sure the buyer's only insurance option really is $7K/yr. Escrow/loan app distress can cloud a buyer's thinking, especially a newbie investor with cold feet. Do not let one buyer's insurance opinion cloud your thinking.

What's the status of your policy? Can and will your insurer raise your rates to that extreme? Is your policy grandfathered? And if so, how long before your rate is adjusted? Ask your agent what's going in your area with flood rates. They may be able to shed some light on what to expect.

As for not being able to sell. Insurance is not required for owners, it's required by lenders. Where I am, I know several cash buyers who would have no issue buying a cash flowing rental and foregoing insurance. Really depends on the numbers. You say you owe $53K. How much is the property worth and what is the rent?

2 Reply

Paul Timmins

Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes

12y

@Brian H.

They are redrawing the flood plain around here. Each foot below costs an estimated $2,500 a year some people find themselves 12-15 feet below. They are looking at the feasibility of raising up the properties to avoid the annual. They started on the coastal areas and will be going in all areas.

The 7K is not impossible for yours I have heard of increases of 15K

Paul

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Patrick L.

Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes

12y

It's a product of Biggert-Waters. That's what happens when a bunch of politicians sit down and make laws without thinking. I'm sure they assumed this would only affect the rich with waterfront homes, but like most things the government goes the middle class was the hardest hit. The rich in waterfront homes tend to have newer properties that meet current FEMA standards while those in sub $100k homes in coastal areas (but not on the water) or anywhere near a river, stream or large puddle are seeing huge bills (I've seen some properties hit with $20k premiums on <$100k properties). It's made many homes unsellable and yours may be one of those. The only option is a cash buyer at a deep discount who is willing to go without flood insurance. There's only the FEMA program for flood insurance so there's no shopping around.....you can find a different agent to deal with but it's always the same insurer in the end.

You just need to hold tight for now because the policians are starting to figure out the actual impact from their poorly planned policy so there is most likely going to be a rollback on this until they are able to figure out a plan.

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Tom S.

Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes

12y

This is indeed what's happening with the new flood insurance rates and I've already been notified of the impending increases. At Lynn mentioned above, rates are increasing 25% per year until you reach the true unsubsidized rate. New owners see the true rates immediately. Shopping around won't matter much as it's the Federal flood insurance program (different insurance carriers may issue it but it's still the Fed program). Here's the summary I received in Vermont:

"The federal rate sheet explains that for a maximum $250,000 policy, the annual cost is now $3,600 per year. If an elevation certificate shows the property is 4 feet above base flood elevation, the annual premium could drop to $553. However, if the property is 4 feet below base flood elevation, the annual premium could rise to $10,723".

- Tom

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Jon Holdman

Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

12y

There is no shopping around for flood insurance. Nor are there any options for who to get it from. There is one and only one choice - the national flood insurance program. No regular insurance company sells flood insurance, nor do the cover any damage from "flooding". That is, any drop of water - liquid or sold - that touches the ground before touching your house. Lots of other stuff insurance companies don't cover. Read your policy sometime.

1 Reply

Lynn McGeein

Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes

12y

I've been reading news updates on flood rates as it's affecting our next home, and hopefully more insurers will come in like they have. It would be a reasonable alternative to waiting to see what government can come up with, although I think there is some issue with getting banks to agree that private insurance will cover the government mandated flood insurance requirement. This is what I read yesterday on google from a Tampa Bay paper:

For example, Lloyd's of London is very active in flood insurance for Bay area homeowners, charging about $4000 instead of $20,000 $30,000 or even $40,000 premiums.

"What Lloyd's of London has done, they've come in and said FEMA, your rates don't make sense.

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John Thedford

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

12y

You have one option: pay off the mortgage. If you want, keep hazard insurance and skip the flood insurance. I have heard for a few months that rates are going to skyrocket. In our area, homes older than about 1980 will be severely impacted due to their lower elevation. Higher taxes, higher insurance, etc are all going to hurt the investment market some. However, if you pay off your mortgage, you aren't required to insure the property.

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Jon Holdman

Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

12y

Interesting. I wonder if the FEMA rates were previously below the real actuarly cost of the policies. Now that FEMAs jacking up their rates through the roof private insurance can step in and offer rates that now look good in comparison. Previously these rates would have been too high to consider vs. FEMA insurance.

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Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

12y

Originally posted by John Thedford:

You have one option: pay off the mortgage. If you want, keep hazard insurance and skip the flood insurance. I have heard for a few months that rates are going to skyrocket. In our area, homes older than about 1980 will be severely impacted due to their lower elevation. Higher taxes, higher insurance, etc are all going to hurt the investment market some. However, if you pay off your mortgage, you aren't required to insure the property.

Paying off a mortgage or buying with cash is feasible for such a small number of properties. If borrowers can't pay $10k flood policies, then their lenders will have to force place policies at an even greater expense. That would put a huge number of people into foreclosure in a short time. Doesn't really matter if the rates are raised incrementally for exising policies. The rates aren't going to be sustainable on properties in the low to mid price ranges or for low to mid income borrowers.

1 Reply

Lynn McGeein

Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes

12y

Jon, yes, the properties affected so heavily are the ones that either were receiving government subsidized rates or homes that were not previously in a flood zone but have been re-mapped into one based on new, more accurate flood maps. Private industry could not get enough people to pay for flood insurance voluntarily as it was too expensive (low probability/high impact scenario), so they stopped covering it. The government stepped in and offered subsidized rates as I guess they thought it was better than taxpayers bearing all the burden of disaster relief, but instead the lower rates promoted more development in flood-prone areas, and there was no limit on claims, so some homes had multiple claims yet still paying low rates. I remember being so frustrated that my friend's beach house (sea level) had flood insurance of like $600 a year, but when I called on my house (16 ft above sea level), they wanted to charge me $1100/year to add flood coverage because mine wasn't subsidized. So the more chance you had of getting flooded, the less your flood insurance costs? Now that subsidies are gone but mortgages still require flood insurance, maybe private companies can get real competitive rates going that actually work this time.

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Brian H.

OP

Real Estate Investor · Louisville, KY · Member since 2012 · 39 posts · 9 votes

12y

All, thank you for your thoughts and suggestions. I found out about the closing falling through the day I arrived in Orlando for six weeks' training with a new employer, and simply haven't had the time to fully dig into this just yet. I think the suggestion to just pay off the mortgage may very well be the best solution, and of course I'll keep my fingers crossed that more competitive premiums will be an option in the near future so I have a better chance of selling. Your responses have certainly confirmed my suspicions, that I've simply been handed a giant sh!t sandwich along with just about every one who owns a house on that street.

1 Reply

Jimmy C.

Flipper/Rehabber · Seminole, FL · Member since 2010 · 859 posts · 316 votes

12y

If you can pay off the mortgage, you could sell with owner financing (if you don't want to sell for an all cash price) to avoid your buyer having a flood insurance requirement.

You could do that with the buyer who fell out actually.

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Rob K.

Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes

12y

When flood insurance is required, is it based on the elevation of your house, or is it a whole area? The reason I ask is because I have a house on Lake Huron that is not in a flood zone. I'm concerned that it could be when the maps are re-drawn. The houses on each side are a good four feet lower. Is it possible that they could be in a flood plain, but not me, or would we all be lumped in together? I went on that flood site and the new maps were not available for my area.

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Ben Skove

Cincinnati, OH · Member since 2013 · 292 posts · 81 votes

12y

@Rob K. It appears that it's the elevation of your house:.

National Flood Insurance Program FAQ

"Flood insurance premiums are lower for buildings in high-risk areas that are elevated above minimum requirements, so rebuilding higher provides immediate flood insurance benefits. Generally, the higher a building is elevated above flood levels, the lower the cost of flood insurance."

2 Reply

Colleen F.Pro Member

Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes

12y

Speaking from experience unless there is no flood hazard or you can afford to loose the place I would not recommend no flood insurance for places that flood. It is not fun picking up the pieces. Even if you just need to knock the place down that is an expense and it is higher since most of these homes were built with asbestos and other hazards of the era.

I do see this having a huge impact on these neighborhoods. People will always rebuild the coastal homes but inland tract homes in working and middle income neighborhoods there will be people who have to walk away. And taxes are not being adjusted based on the value decrease so you have flood insurance and the house is taxed as if the market value is the same. There is an inability to absorb the increase in some areas so I am wondering how it will play out.

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Mike H.

Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes

12y

You are also missing one other possible option. If your building may not be that bad, you might be able to either: 1) Pull it out of the map completely or 2) Get an elevation study to lower your premium.

I was getting a survey for another closing and the engineering company asked me if I had any houses in a flood plain because they have a service to try to do just those options.

I paid $750 for the first phase and they were actually able to pull my house out of the flood plain. And I also get a refund from FEMA for my last premium (1k).

What they said would have been the second phase would be to survey the elevation and, hopefully, get better rates provided the elevation is better than the default.

The way he explained it to me was that:

1) The flood plain insurance rates were going to go up.
2) They were going to go up significantly for all homes that did not have this elevation mapped.
3) The rates should be much better for those who did have their elevation mapped.

My take was that if you didn't have the elevation mapped, they would basically be hitting you as if you were the absolute worst risk of anyone in the flood plain map. And if you have it mapped, you were going to save money.

The other thing that helped was that this engineer was aware of both of the subdivisions these houses were in and gave me a recommendation as to whether there was any chance to pull them out completely or not. But he said, even if I couldn't pull them out, having the elevation mapping done was going to save me regardless. He said, for the most part, people will get their money back on his services in about 18 mos.

It worked for one and I'll be having the other one done too.....
Probably won't help the coastal areas. But if you're in a gray area in the map (maybe you're by a small river or stream or something), I would definitely recommend looking into it. Saved me 1k a year!

2 Reply

Flood insurance $7000, on a $70,000 house?? Need advice please

Flood insurance $7000, on a $70,000 house?? Need advice please

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