Industry News
Ask the Experts; Home Buyers, Be Aware
When
your borrowers are buying or renovating a home, they may want you to
answer a variety of questions about flood insurance. Here are two
examples: one basic and one that’s a little more complex. If you wonder
about how to answer, you are not alone.
Do I Have a Right to Know?
Question:
If I am planning to buy a house, is the seller obligated to inform me
if the house is in a Federal Emergency Management Agency (FEMA)
designated flood area? What if the seller doesn’t know?
Answer:
The requirements that go with selling a home vary from state to state
(and even community to community – a community may,
theoretically, have stricter requirements than the state), but a real
estate agent should know what is required. For instance, when I bought
my home, a termite and roof inspection (and guarantee) were required
but nothing about the flooding history.
In some areas, sellers do have deed
requirements to include information about past flood damage, but this
is rare. Remember, a seller may not know the home’s history before he
bought it. You might be able to see evidence of prior
flooding – such as flood lines on the brick
foundation – but that’s not always evident.
Is My Renovation Considered
Substantial Improvement?
Question:
We bought a house on a cove on the Connecticut shoreline that is in a
V-10 zone and therefore subject to flooding from a hurricane. I want to
add a small addition to the existing dwelling. The town’s building
official claims that this is a new construction (because it requires a
foundation) even though it comes in under the 50 percent market value
defined as substantial improvement. Is an addition to an existing
dwelling considered new construction if the total cost is less than 50
percent of the market value?
Answer:
The addition to your existing dwelling would be considered new
construction. The fact that the cost to construct is less than 50
percent of the market value of the existing building means that your
dwelling would not be considered substantially improved and there would
be no change in the manner in which the policy is rated. However,
please check with your building official. The addition must be built
next to and in contact with the existing building and constructed so
that the bottom of the lowest supporting member of the lowest floor is
at or above the Base Flood Elevation (BFE). You’ll also have to provide
an Elevation Certificate (EC) to verify that the addition has been
built in accordance with your community’s floodplain management
ordinances.
Tracking Changes
Remind
your borrowers that any change in their status as owners can affect all
forms of insurance, including flood. Borrowers are encouraged to check
with their agents who can in turn refer to the Flood Insurance Manual
for all pertinent information regarding their coverage.
Reprinted with the permission of
Susan Bernstein, Editor of Watermark.