New Flood Insurance Rules Have Consequences For Florida Realtors And Their Transactions

New Flood Insurance Rules – Read This And Weep!

Last summer both houses of Congress passed legislation intended to shore up FEMA in the wake of huge deficits that resulted from Hurricane Katrina-related losses.

What transpired was this: “Congress agreed the federal government would no longer subsidize flood insurance. In other words, homes in high-risk areas would pay the full freight on their premiums.”  So, starting October 1st, “any business in a high-risk area will immediately lose its flood insurance subsidy. Any home sold after October 1st will also lose its subsidy. And…any home sold after Biggert-Waters passed last summer will lose its subsidy [as well]. For everyone else in high-risk areas…[t]heir premiums will increase [at ranges up to 25] percent every year until their policies are no longer subsidized.”

According to the attached Tampa Bay Times article: “The aim behind the [legislation] is laudable. The execution is most certainly not.”

Sound drastic?  Read on:

  • Anyone with a flood policy on a “pre-firm” home (one that does not meet base flood elevation requirements) whose purchase closed after July 6, 2012, will receive a notice of non-renewal.  To continue coverage beyond one year the homeowner will need to supply an elevation certificate, and pay the full risk rate for the policy going forward.  If they elect not to procure the elevation certificate, then they are assessed on an alternative rate structure, but only for one year.  If they have a loss during that one-year period, the homeowner then has to supply the elevation certificate and pay the applicable premium in order for the insurer to then pay the claim.
  • Anyone who bought a “pre-firm” home before July 6, 2012 will be subject to rate increases, which will go into effect October 1st.
  • Flood policies are no longer assumable after October 1st.
  • The new rules distinguish (discriminate?) between primary and secondary/seasonal residents in establishing rates.  To be deemed a “primary resident,” an individual has to live in the home 80% of the year – homestead status, etc. makes no difference – it is a residency test. Otherwise, the property is considered a seasonal/secondary residence, and subject to a different (more aggressive) rate structure.

From a practical perspective, how does a Realtor deal with such issues and avoid getting into the unlicensed practice of insurance?  That’s simple: leave it to the insurance professionals.  On the listing side, avoid any representations in your listing materials, contracts and presentations regarding availability or cost of flood insurance coverageOn the selling side, make sure your clients retain a professional insurance agent to assess potential properties and advise of exactly what kind of coverage is available, and for how muchAlso be sure to include the FAR/BAR addendum on point with your offers so that the insurance issue is a contingency allowing cancellation should the policy premium be too much for the buyer to afford.

Keep in mind that this is a rapidly developing issue, so it is imperative to maintain close contact with your own trusted insurance professionals to make sure you remain abreast of changes, additional rule clarifications, and their potential impact on your clients and their transactions.

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This information in this site is not intended to establish an attorney-client relationship, and if anything herein could be construed as legal guidance or advice, I strongly encourage you to consult with your own attorney before relying upon any such information.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

dunlapmoran.com

** Publisher’s note: Tampa Bay Times article provided courtesy of Jim Henning, Florida Executive Realty (Tampa). Contact Jim at 813.310.8108, jim@jimhenning.com.  This post was composed with valuable input from Robert Ludwig, formerly of Ludwig-Walpole insurance agency, now Bolt Insurance Agency  (Sarasota).  This post was published at 30,000 feet (DL650, TPA -> LGA).

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The “50/50 Rule”

A good Realtor friend called asking for a refresher on the “50/50 Rule.”

The regulation to which they were referring, of course, is the so-called “Fifty Percent Rule,” which simply states that if the cost of any reconstruction, repair, addition or other improvement to a property equals or exceeds 50% of the market value of the structure, then the structure has to be brought into compliance with current FEMA regulations.

Each municipality has its own rules about how to calculate the 50%, so the best advice you can give a client is for them to seek the guidance of the appropriate building official if they are planning to renovate the home or redevelop the site.

And, be extremely careful if you think someone is considering, or worse, has conducted, unpermitted work to the structure to avoid the 50% threshold.  The unpermitted improvements will inevitably come to light, and likely when the timing is least opportune.  More fundamentally, who wants to play nursemaid to a transaction where the sellers have to produce a forensic appraisal of the structure’s value prior to the completed renovations, while building officials are tearing out drywall to check plumbing and electrical work for code compliance?  It may sound far-fetched, but it is a true story.

For your reference, following are the pertinent portions of the Sarasota County zoning code on the subject, including the code provision which details how the 50% is calculated.  Keep in mind that this code only applies to the “unincorporated” portion of the County – the City of Sarasota, City of Venice, Town of Longboat Key, etc. all have their own codes:

Substantial Improvement means any reconstruction, rehabilitation, addition or other improvement of a Structure, the cost of which equals or exceeds 50 percent of the Market Value of the Structure before the Start of Construction of the improvement. This term includes Structures which have incurred Substantial Damage, regardless of the actual repair work performed. The term does not include:

a. Any project for improvement of a Structure to correct existing violations of state or local health, sanitary, or safety code specifications which have been identified by the County and which are the minimum necessary to assure safe living conditions, or

b. Any alteration of a Historic Structure, provided that the alteration will not preclude the Structure’s continued designation as a Historic Structure.

Market value means the replacement value of a building or Structure, less the value of all forms of depreciation as supported by a well-recognized cost estimator, not to include the vacant land value, Accessory Structures, and Appurtenant Structures such as pools, pool cages, detached garages and any other Structure not structurally attached.

For the purpose of determining Market Value the applicant may use the Sarasota County Property Appraiser’s Office assessed value of improvement plus 20 percent or an Appraisal Report prepared by a State of Florida Certified Residential Appraiser or State of Florida Certified General Appraiser which meets the requirements of the version of the Uniform Standards of Professional Appraisal Practice (“USPAP”) incorporated by reference in Florida Administrative Rule 61J1-9.001. As contemplated by Standards Rule 1-2 of USPAP, the applicant’s appraiser shall identify all intended users of the Appraisal Report, including the Building Official, and the intended use as ensuring compliance with this Ordinance. The Building Official shall perform a review of the following: (1) whether the Appraisal Report accurately reflects the characteristics of the building or Structure (e.g., total square footage and number of rooms compared to tax records, condition of the building or Structure, quality of construction); and (2) whether the replacement value excludes the vacant land value, Accessory Structures, and Appurtenant Structures such as pools, pool cages, detached garages and any other Structure not structurally attached. Further, the Building Official shall use whichever Market Value is higher.

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This information in this site is not intended to establish an attorney-client relationship, and if anything herein could be construed as legal guidance or advice, I strongly encourage you to consult with your own attorney before relying upon any such information.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

dunlapmoran.com