This week started off about as badly as any week we’ve had in this business. Everything that could go wrong, was going wrong. And it all culminated with a phone call from our lender on Wednesday morning letting us know that The Mini House was in a flood plain, and that we’d need to get flood insurance for them to lend against the property (we were scheduled to close on Thursday, 24 hours later).
Before I go too far into this story, a quick reminder of the last time we bought a house in a flood plain — it was The Yellow Stain House, and at the time, we didn’t know enough to check the flood plain status of the house during our due diligence period. Long story short, after days of phone calls, meetings with surveyors, and jumping through more hoops than I care to remember, we were able to get proof that the physical structure of the property was not truly in a flood plain, and were able to successfully petition FEMA to update their flood maps.
If you’re wondering why this is such a big deal, it basically boils down to the fact that a house in a flood plain is difficult to resell, as lenders will require expensive insurance coverage, and buyers don’t want to incur the risk.
Anyway, after that whole nightmare with The Yellow Stain House, we always check the county records to determine if a house is in a flood plain before we get too far into the deal. And when I got that phone call from my lender, I was confused. I was certain that I had checked the flood plain status as part of my due diligence (that’s why I have an acquisition checklist!).
So, I went back to the county records, and sure enough, the house was listed as being in Zone X, which means there’s essentially no chance for flooding, and lenders should not require any coverage. But, my lender insisted it was in a flood zone, and forwarded me the Flood Certificate generated by FEMA.
Surprise, surprise…it appeared that FEMA had updated their local flood maps last December (just 6 months ago!), and in the update, this house got put into Zone A, which is a 100-year flood plain (meaning that there is a 1% chance of flooding any given year). Because the map updates were so new, the country records haven’t yet been updated, and unless I had called FEMA myself (add that to the checklist!), there is no way I could have known.
From there, things got worse…
Because I couldn’t back out of the contract without losing my $5000 deposit, and because my lender would only finance the deal if I got insurance, my next step was to call my insurance agent. My agent asked if we had a survey (specifically an “elevation certificate”) that indicated the exact elevation of the property, so he could provide that to the insurance company to get me a quote. Because the house wasn’t originally in a flood plain, no survey was ever done. My insurance agent basically said that my two options were to get a survey done, or to get a letter from the city indicating no survey was ever done.
My brother called our survey guy, while my wife and I went to visit the city planning office. We verified that no survey was ever done, and were told that the only person that might be able to provide the letter was the head of Public Works for the city, in another building. So, we went to visit him.
He explained that the new flood maps were a result of some major flooding back in 2005, and that because elevations throughout the area where our house sits were very inconsistent, the whole area was designated a flood plain. Looking at a map, he was able to quickly tell us that our specific property was probably NOT in a flood plain, but that we’d only know for sure if we got a survey done. He mentioned that a couple houses relatively close to ours had completed surveys and were able to successfully get themselves removed from the flood plain.
In the mean time, he wrote us our letter for the insurance company to allow us to get coverage. But, before sending it to our insurance agent and spending the $1000 or so to get a year of coverage (non-refundable), my brother got a call from our surveyor saying he could get out to the property tomorrow and have a survey and elevation certificate for us by the beginning of the weekend. If the house was actually not in a flood plain, we would know by Saturday.
So, we pushed the closing out to next Tuesday, are having the surveyor do his work tomorrow and Friday, and hopefully by the end of the weekend we’ll know if the house sits in a flood plain or not, and will take it from there in terms of getting insurance and figuring out our exit strategy on this one.
I’ll have more to say on this one by early next week…
{ 4 comments… read them below or add one }
J-
Any feedback yet on whether or not the house sits in the flood plain? If so, would it make the house FHA uninsurable- or would an FHA buyer just need to obtain flood insurance? I just looked at a house this weekend that I’m interested in, but found out that it was added to the 100 yr flood plain last spring when we had a lot of flooding in Omaha.
This house also has quite a bit of lead-based paint present as well, so I’m a little leery of taking on a project with both LBP and flood zone designation. Have you ever dealt with LBD remediation/abatement? The HUD site published an extensive LBP inspection report, and it’s not something I’ve had much experience with.
Feel free to PM me if this is too off topic. Appreciate your insight!
Owen -
Here’s the latest update on the flood zone issue: http://www.123flip.com/house-12-officially-ours
As for FHA, they will insure a property in a flood zone assuming the buyer carries appropriate flood insurance. If you’re considering buying a property in a flood zone, I would recommend that you contact your insurance agent, and get a quote for the flood insurance (this will require an elevation certificate from a survey). That will give you an idea of how much the insurance will cost, and depending on the burden on the buyer, you’ll get an idea of how difficult it will make resale. For example, The Mini House flood insurance is only $260/year, or about $22/month, which shouldn’t impact a buyer’s payment too much.
By the way, flood insurance is provided by a FEMA-run organization, so regardless of what insurance company you order it through, the price will be the same. No need to shop around.
As for lead-paint, I’ve never tackled it. I would recommend contacting a company that does LBP abatement and getting a quote.
In terms of making decision whether to move forward or not with this house, I would treat the flood plain and the LBP issues separate. The LBP issue boils down to cost; how much will it cost you to remediate it, and is there enough room in the budget to pay that price? If so, just get a professional team in there to do it…it’s not difficult if all you’re doing is writing the checks. As for the flood plain, get a quote on the insurance, and determine the extra cost to your buyer. For example, if the insurance is $1200/year, that’s an extra $100/month; for a $500K house with a $3000/month payment, the extra $100 doesn’t mean much. But for a $100K house with a $700/month payment, the $100/month adds about 15% to the buyer’s total monthly payment.
Hi, I have a similar problem accept when we purchased our house 2 yrs ago we were given a survey that says we are not in a flood zone. After living in the house 2 yrs we found out from the appraisal district that we were in the flood plain. My problem is that we would have never purchased the home if it had been in the flood plain. Now what do we do? Can we sue the title company for not finding this in their search?
If anyone has any info I would love to hear it.
Bonnie -
Do you know if the FEMA Flood Maps were revised in the past two years? Perhaps you really weren’t in a flood zone two years ago, and now you are?
Unfortunately, you can’t sue the title company, as this isn’t something they are responsible for finding. Generally, it’s your insurance company that would figure this out or, if you had a survey done, your survey company would figure it out.
Something to keep in mind is that just because your municipality thinks you’re in a flood zone doesn’t mean you are. Generally, they lump an entire area together, and say that the whole area is in flood plain, when in reality, the flood plain only covers properties that are below a certain elevation. In other words, while some of the houses in that area might be considered in the flood plain because they sit below the cut-off elevation, others in that area may actually be above the cut-off elevation and not in the flood plain.
You can have a survey done that will tell you specifically if you’re in the flood plain or not, and if the surveyor determines that you’re not, you can have the flood maps revised to remove your property.