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…