One Question Every Homebuyer Should Ask But Never Does
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Originally Posted On: https://www.betterflood.com/blog/flood-insurance-claims-fema-2-0/
Buyers have so many questions about prospective homes. What school do the kids attend? How many bedrooms and what’s the square footage? When were mechanical systems like heating and air conditioning last updated?
Sellers and seller’s agents provide answers. And federal and state laws require sellers to answer some questions that might not be asked.
For example, federal law requires sellers to disclose whether a home built before 1978 has lead-based paint. States have their own laws that require disclosure of material defects. This includes things like:
- Structural defects such as foundation issues;
- Plumbing problems;
- Presence of mold;
- Termite or other pest infestation or damage.
However, states do not uniformly require disclosure of a home’s flooding history or even if the home is in a flood plain. That’s a real problem. And changes to the National Flood Insurance Program (NFIP) in the coming months are about to make it an even bigger problem.
A Tale of Three States
The lack of uniform reporting requirements can be particularly confusing for buyers that move from state to state. For example, let’s look at what buyers in three different states will know about the flooding and their potential purchase.
Robert and Regina are buying a home in Alabama.
The state of Alabama has no statutory requirement for a seller to disclose any information about flooding. Robert and Regina aren’t required to be notified that the home is in a flood zone and the only way they will find out is if they obtain a mortgage to finance the purchase. Even then, it’s the mortgage lender that will make the notification – when they tell them they must buy flood insurance! Sellers are not required to disclose prior flooding events or flooding risks. The Alabama Association of Realtors created a voluntary disclosure form for sellers to use, but it is voluntary.
Stephen and Samantha are buying a home in Texas.
Texas has some of the most stringent flood disclosure laws in the United States. It’s the complete opposite of Alabama. Stephen and Samantha will learn some information about the property’s history of flooding. In Texas, a seller must disclose by law:
- If the home was previously damaged by a natural flood;
- If there was a previous flood due to failure of a reservoir or an emergency release of water from a reservoir;
- If the property or any part of the property is in a 100- or 500-year floodplain;
- If the seller ever filed a claim for flood damage with any insurance provider;
- If the property is currently covered by flood insurance;
- If the seller ever received FEMA or SBA assistance for flood damage.
Now, if Stephen and Samantha sell their Texas home and move to Alabama, they will probably expect the same level of disclosure. And the lack of disclosure might lead them to believe that flooding isn’t a relevant concern. See the problem?
Dennis and Cheryl are buying a home in Ohio.
Ohio does an average job in the flood disclosure category. There is no mandatory requirement to disclose that the property must be covered by flood insurance. But the state has a mandatory seller disclosure form that requires the seller to disclose to the buyer:
- Knowledge of any water or moisture-related damage to floors, walls, or ceiling caused by a flooding event;
- If the property is in a designated floodplain;
- Knowledge of any prior or current flooding problems with the property.
So, three sets of buyers in three different states receive three different levels of disclosure. And they are all missing one important question that will make a big difference in their rates once FEMA 2.0 goes into effect.
Always Ask “How Many Flood Claims Have Been Filed in the Last 20 Years?”
Once FEMA 2.0 goes into effect on October 1, 2021, the rules about prior claims are going to change drastically.
Initially, all premium penalties for prior claims will be wiped away. Yay!
Hold your excitement because things are about to get worse. And unsuspecting homeowners are going to be hit with some incredible premium increases based on the prior experience they don’t even know about.
That’s because FEMA 2.0 will initiate a 20-year rolling time frame for prior NFIP claim penalties. And the penalty only goes into effect after the homeowner makes the first claim under FEMA 2.0.
Imagine this potential situation:
A homeowner in Alabama, Florida, Missouri, Connecticut or any of the other states that don’t require flood disclosure buys a home in 2021. In 2025, they experience a flood and file a claim. Now, when their policy renews in 2026, they are hit with a huge prior claim penalty. “What?” they say, “we’ve never had a flood before. How can we have prior claims?”
Well, they discover claims were filed by previous owners in 2010 and 2015. Maybe the people that sold them the property didn’t know it had flooded. It doesn’t matter, the current owners not only face recovering from devastating flood damage, but they must contend with the financial impact of being assessed for a total of 3 flood events (1 while they owned the home and 2 before they purchased).
Had these homeowners known about the flooding in 2010 and 2015, they might not have purchased the property.
They should have asked, “How many flood insurance claims have been filed in the last 20 years?”
As a matter of fact, EVERY buyer in every state should start asking this question.
How To Determine Prior Flood Claim History
Flood claim information is considered private information. You can’t go online and look up the flood claim history for a property the way you can find out about taxes and assessments.
And potential buyers can’t ask FEMA about claim history for a property they don’t own. Well, they can ask away, but FEMA won’t provide the answer.
Only the current property owner can inquire about prior NFIP claim history. They can call (877) 336-2627 and request this information from FEMA. Property owners can find out about claims filed even when they didn’t own the property.
There’s no reason for sellers not to disclose the flood insurance claim history over the last 20 years. And any home buyer that doesn’t ask this question is playing with fire. Well, more like water – but water is the most damaging force on Earth. And flooding is the costliest natural disaster in the US.
FEMA 2.0 Changes Prior Claim Dynamics
Without getting deep into the flooded weeds, FEMA 2.0 is changing the way NFIP insurance is priced. Currently, you can look at a policy and premium and tell if the property has been previously inundated by floodwaters.
Starting October 1, 2021, those prior claim penalties will be removed and the waters muddied. The only way to know about prior claims is to ask. The only way to protect yourself from prior claim penalties is to find out about prior claims before you buy the property.
Agents, Buyers, and Sellers Should Take Action
Real estate agents and brokers, if you truly represent the interest of your buyer, make sure they ask for the prior flood claim history on a property. Ask for a history that goes back 20 years. Don’t close without a disclosure.
Buyers, make a condition of the contract disclosure of flood claims over the last 20 years. Ask the seller to provide this information before closing and make sure you make an informed purchase decision. Your offer should provide for cancellation of the contract if the history isn’t provided.
Sellers, disclose all flood claims made in the last 20 years. If you haven’t owned the property for 20 years, then ask FEMA for the history.