We need your help.
We are asking REALTORS® and homeowners to provide examples of how these potential rate increases and re-drawn flood maps are hurting homeowners and the market. If you’d like to help, please fill out this survey by clicking the box below:
The National Flood Insurance Program (NFIP) has become a hot topic lately. REALTORS must be aware of the possible changes to NFIP, and be sure to take steps to avoid potential claims of misrepresentation by property purchasers who acquire property before such increases take effect and are later subject to substantial increases in their flood insurance premiums.
What is the Biggert-Waters Flood Insurance Reform Act of 2012?
The Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) is a law passed by Congress and signed by the President in 2012 that extends the National Flood Insurance Program (NFIP), a government program that provides flood insurance coverage to homeowners and businesses, for five years. The Act also requires significant program reform, including phasing out subsidized flood insurance rates and redesigning the rate structure so that the premium structure more adequately reflects the true risks and costs of flooding. For those who own properties located in flood-prone areas, homeowners may see a 25 % increase in premium rates each year until premiums reflect full risk rates, as early as October 1, 2013. NAR is, however, working with Congress to pass a bill to delay and alleviate some of the impacts.
If a property is not currently in a flood zone, could it be located in a flood zone in the future?
Yes, it could be. In addition to the changes resulting from the Biggert-Waters Flood Insurance Reform Act, FEMA also began a routine redrawing of federal flood maps in 2009, some of which hadn’t been updated in decades. This re-mapping will result in some properties changing to higher-risk zones, which will mean significantly higher premiums; it could also result in some properties changing to lower-risk zones.
If I am selling a property that may require flood insurance, or that is located in areas where the purchase of flood insurance may be prudent, what steps should I take to protect myself, and act in the best interest of my client?
• In general, the Massachusetts Consumer Protection Act, Chapter 93A, requires REALTORS to disclose adverse material features, conditions, or aspects of property of which they have actual knowledge. REALTORS normally are not required to investigate or discover potential defects in a property; therefore, it is unlikely that there would be an affirmative duty for REALTORS to determine whether a property is in a flood zone or otherwise in an area likely to be subject to flooding or flood risks. However, if a REALTOR has actual knowledge that a property being marketed for sale is in an area where flood insurance is required, or has specific knowledge that flood insurance has been required for that particular property in the past, those facts should be disclosed to the buyer. This same holds true if the REALTOR has actual knowledge that the area in which the property is located has experienced flooding or is subject to flood risks that cause many or most owners to purchase flood insurance – those facts should also be disclosed, even if not asked.
• It is always advised that you be the “source of the source.” Therefore, you should be prepared to point prospective purchasers to “official” sources or those otherwise known to be competent and reliable regarding Flood Insurance. These might include publications, pamphlets, or similar materials prepared or distributed by FEMA or other federal or state agencies or departments, or other sources known to be credible. Some reputable sources include: http://www.fema.gov/flood-insurance-reform-act-2012 and http://www.floodsmart.gov/floodsmart/. The National Association of REALTORS has a lot of helpful information at: http://www.realtor.org/topics/national-flood-insurance-program-nfip/resources.
• It is also advisable to recommend that potential purchasers contact multiple suppliers of flood insurance policy coverage to receive more information about flood insurance coverage and rates. Brokers and agents should not recommend or endorse any particular carrier, and it is prudent to identify more than one carrier and encourage interested buyers to compare flood insurance carriers.
• If you suspect that flood insurance may be required or prudent, you should advise prospective purchasers that due to recent changes to the NFIP, combined with re-mapping of the flood zones, flood insurance rates could be higher than in the past. Such advice should explain that current flood insurance premiums are not representative of rates in the future and that rates may increase. An example of a disclosure statement that could be used for this purpose has been drafted by the National Association of REALTORS, and is copied below. Brokers and agents may also use different methods or language in communicating information about flood insurance, but it is advisable to do so in writing. In circumstances where flood insurance is not required and there is no reasonable basis for a broker or agent to believe that it may be required or is prudent to have, no such disclosure need be provided.
If you have any questions on the National Flood Insurance Program, we suggest you visit the website mentioned above. Additionally, you may call the Legal Hotline at 1-800-370-LEGAL.