FEMA is the agency within the Department of Homeland Security that controls the National Flood Insurance Program.
Scott Van Hoff is the Flood Insurance specialist with FEMA. Real estate investors need to know, now more than ever, how to determine if a property is in a flood zone that will require flood insurance.
FEMA stands for Federal Emergency Management Agency and is responsible for the National Flood Insurance Program, NFIP. Communities enroll in the FEMA which makes the NFIP available to its residents.
In exchange, the community agrees to actively manage new construction in the floodplain by not issuing building permits below the base flood elevation related to the 100 year floodplain. This agreement makes insurance available to people in the floodplain who would not be able to purchase flood insurance, and keeps additional people from building in an area likely to flood.
Flood Map Revisions
FEMA is required to periodically update the flood zone maps based on priorities set by Congress. The path of water changes due to natural causes such as erosion and development. And the mapping technology continues to improve, which provides for more accurate maps.
When a map is revised, and the property zone changes, from flood insurance being not required to required, it may not be realized by the seller. This scenario typically comes to light when a seller who has owned a property for many years and has either a private or no mortgage.
Flood Zone Change
Unfortunately, this happens all the time. The seller does not know, and the real estate brokers do not ask, nor want to know. A buyer may assume, by omission, that the sellers information is correct. Then the bank provides a closing estimate the day before funding. On it you learn the requirement for Flood Insurance needed to close the loan.
You have invested all this time, and money into the purchase. Are you going to walk away from your earnest money?
To protect yourself from this scenario, check the FEMA Flood Maps in the beginning of your due diligence. It can save you a lot of time and money.
Base Flood Elevation
The Base Flood Elevation is the required height above the one hundred floodplain needed to avoid the requirement for flood insurance. If a property has a stream or body of water that runs through or adjacent to it, it is likely that the entire parcel will be designated within the flood zone.
Removing Property From Flood Zone
In order to remove the structure on the parcel from flood zone, it will be necessary to prove that the structure is elevated above the base flood elevation. FEMA provides a process to do this called, “Letter of Map Amendment”, LOMA. This is a process that requires an elevation certificate be produced by a surveyor and submitted to FEMA with application for LOMA. Upon approval, FEMA will file and provide you with a Letter of Map Amendment. When you show this to your lender, the requirement for flood insurance will be dropped.
If your property is truly in the flood zone, it is possible to lift your building and raise the first floor above the base flood elevation. There are companies that specialize in this type of work and can raise the building and build a taller foundation then set your building upon the new foundation.
Flood Insurance Zones
Flood insurance is required by any lender when lending on a property located in a flood zone with a greater than 1% chance of flooding. The zones are rated as follows:
- Zone “A” – The Special Hazard Flood Area 1% chance flood plain or the 100 year floodplain and are located near a river or stream.
- Zone “V” – V is for velocity and references the wave action for coastal water. Coastal property can have either an “A” or “V” zone rating.
- Zone “X” is for the 500 year flood zone. Properties in this zone are not considered to be at risk for flood and do not require flood insurance.
- Zone D these zones have not been studied, and typically do not have any population nor structures in the area.
Historically, Flood insurance was only available through the National Flood Insurance Program, NFIP. Recently, the market of available insurance companies has grown to include private carriers. The private companies will likely only insure less hazardous zones, for less than the NFIP program.
Declared Flood Disaster
When an area suffers wide area flooding, FEMA shows up to help the local residents and coordinate relief. A common misconception is that FEMA hands out money to help you rebuild. FEMA will make available to those who suffer great loss, small grants from $2,000 to $4,000. FEMA does not make low interest loans, but the Small Business Administration, SBA does, and works with FEMA to help you if you are in need.
Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”
BIGGEST RISK: The rising sea level, especially in our coastal areas. From the perspective of a homeowner or somebody who’s making a long term investment, you might be, you know, in this location, in this home or owning this property for a few decades. There certainly may maybe a likelihood, certainly an opportunity that there’s going to be greatly increased risk in increased cost to the homeowner as a result of changing flood and changing risk conditions.
All too often I see that especially retired people living in a retirement home, working and literally be priced out of their homes because of the cost of covering or covering that risk, the cost of insurance. This is something it does concern me private, because we have so many people in that situation in these coastal areas. Coastal areas attract people, especially in their retirement years, it seems. And I’m concerned about that increasing risk in people’s ability to adapt to that financially.
For more go to:
Maps: FEMA Map Service Center