House purchased - wasn't aware house was in flood plain
Birmingham, AL · Member since 2012 · 12 posts · 3 votes
My friend just purchased a foreclosure. He's fixed it up and is now placing it back on the market to sell. He thought he was about to get an offer but when potential buyer called insurance agent, they told her it was in flood plain. When he purchased home, it was never mentioned that it was in flood plain and now he's worried he can't sell it. Shouldn't this have been disclosed or discovered prior to his purchase? Any advice? He's worried buyers may be scared away.
Should your friend have discovered it...yes.
Did it need to be disclosed....no.
Particularly bank owned properties...."we never lived in it, we don't know nothin' about it, never seen it, etc."
andy
Thanks Andy, I'm sure this one is. I spoke with the Owners who had a flood several years ago. Everything was covered by their insurance but THEY SAY it's the cause for why they foreclosed. (I'm sure more to the story).
I would think there is more to the story,,,like the fact that they didn't make payments,, that normally precedes foreclosure
Current prices for flood insurance aren't necessarily accurate, and investors who are putting money into flood-zone properties should understand how NFIP policy is evolving in the same way that rehabbers should understand home improvement.
Here's the tip of the iceberg.
Biggert-Waters (2012) did a few things. Most importantly:
It created a pathway to phase out the massive subsidies FEMA has been giving to the owners of properties in repetitive flood zones;
It required new mapping with the effect of classifying more property as flood-prone, expanding the risk pool;
And because maps cover broad areas an not specific parcels it better codified the process of contesting flood-zone designation through Elevation Certificates.
As soon as the subsidies started being phased out, there was a ruckus because the rates went sky high. Property owners were outraged. Cities that had done remediation sued. In response to that ruckus, ultimately the Federal Government passed an affordability measure that also did a few things. Most importantly:
It ordered FEMA to change the way that the subsidies would be phased out in order to keep the policies "affordable."
And it ordered FEMA to make that change retroactive, so property owners who have been paying astronomical rates will be refunded the difference if they qualify.
FEMA hasn't yet created the "affordable" model, and property owners are still being charged the Biggert-Waters rates. They still have to pay those rates to keep their policies in force. Theoretically, they will get a nice fat check when all is said and done.
So what you're dealing with when you look at a property in a flood zone is a lot of uncertainty. You're basically making a bet on what FEMA is going to call "affordable," how Congress will continue to re-engineer the NFIP, whether flood insurance is going to be turned over to the private sector, and so on. If I were making a $100,000 bet on Federal policy change, I'd want to know as much as I could about it before doing so.
Finally, I have to add that I'm not an expert on this. Due diligence on any flood property, and flood insurance in general, is CRITICAL for any investor thinking about this space.
I recall one of my realtors telling me that the insurance rate on some of the $1Mil+ properties here on the coast just went as high as $5k/mo! Oi! I'm gonna just invest boat homes now.
Here's the tip of the iceberg.
Biggert-Waters (2012) did a few things. Most importantly:
It created a pathway to phase out the massive subsidies FEMA has been giving to the owners of properties in repetitive flood zones;
It required new mapping with the effect of classifying more property as flood-prone, expanding the risk pool;
And because maps cover broad areas an not specific parcels it better codified the process of contesting flood-zone designation through Elevation Certificates.
As soon as the subsidies started being phased out, there was a ruckus because the rates went sky high. Property owners were outraged. Cities that had done remediation sued. In response to that ruckus, ultimately the Federal Government passed an affordability measure that also did a few things. Most importantly:
It ordered FEMA to change the way that the subsidies would be phased out in order to keep the policies "affordable."
And it ordered FEMA to make that change retroactive, so property owners who have been paying astronomical rates will be refunded the difference if they qualify.
FEMA hasn't yet created the "affordable" model, and property owners are still being charged the Biggert-Waters rates. They still have to pay those rates to keep their policies in force. Theoretically, they will get a nice fat check when all is said and done.
So what you're dealing with when you look at a property in a flood zone is a lot of uncertainty. You're basically making a bet on what FEMA is going to call "affordable," how Congress will continue to re-engineer the NFIP, whether flood insurance is going to be turned over to the private sector, and so on. If I were making a $100,000 bet on Federal policy change, I'd want to know as much as I could about it before doing so.
Finally, I have to add that I'm not an expert on this. Due diligence on any flood property, and flood insurance in general, is CRITICAL for any investor thinking about this space.
Thanks Eric,
Well we're certain of it been in the flood zone and just got rates from the Agent...$1000. annually.
Thanks Andy, I'm sure this one is. I spoke with the Owners who had a flood several years ago. Everything was covered by their insurance but THEY SAY it's the cause for why they foreclosed. (I'm sure more to the story).
I would think there is more to the story,,,like the fact that they didn't make payments,, that normally precedes foreclosure
Absolutely, I checked court house records ..this guy doesn't pay any of his bills!! numerous liens & judgements! AND this being his 2nd Foreclosure....... Now forgive my ignorance on this but the liens I saw wouldn't have anything to do with the property I may buy as long as the Title is Clear right ?
Ok Walt, so I know this property IS in a flood zone up front,,,Good or Bad investment for buy and hold ? If I'm understanding correctly you have a property/properties in a flood zone. Is it about getting the proper coverages ? Please advise
It depends on which flood plain. I suspect most of Florida is in the 100 yr. flood plain. And if you anticipate the costs then the numbers just have to justify it. Based on the comments above I would estimate it on the high end, But I would not rule it out. At $500/yr it definitely could be a deal breaker on a marginal performer, or it could be trivial on a true winner.
Walt, considering it being a "rental" and the tenants really are paying the expenses would that be much of a factor ? course I know the cheaper the better...
Thanks Troy, you might be onto something...Lol
Ok Walt, so I know this property IS in a flood zone up front,,,Good or Bad investment for buy and hold ? If I'm understanding correctly you have a property/properties in a flood zone. Is it about getting the proper coverages ? Please advise
It depends on which flood plain. I suspect most of Florida is in the 100 yr. flood plain. And if you anticipate the costs then the numbers just have to justify it. Based on the comments above I would estimate it on the high end, But I would not rule it out. At $500/yr it definitely could be a deal breaker on a marginal performer, or it could be trivial on a true winner.
Walt, considering it being a "rental" and the tenants really are paying the expenses would that be much of a factor ? course I know the cheaper the better...
Of course it matters. All expenses matter. It is the total numbers that are used in decisions to buy, but that is still $1000/yr that has to be paid to insurance instead of being profit. And if the profit is already marginal, that could turn it into a negative cash flow.