Common Flood Zone Scenarios and How National Flood Experts Can Help

Flood zones are not always clearly communicated during due diligence, and they can cause unexpected headaches and additional costs. National Flood Experts is here to help you navigate these common scenarios and find solutions that work. Below, we outline five common scenarios investors encounter and explain how we can help mitigate the associated costs.

Scenario 1: Property is “not” in a flood zone.

During due diligence, investors may learn from the seller that a property is "not" in a flood zone because the seller does not have flood insurance. However, not all sellers carry debt on a property and are required to have flood insurance. During the closing process, the lender runs flood zone determinations, and the structures may be identified within a 100-year flood zone, requiring flood insurance and disrupting the business plan. To avoid surprises, investors can look up the property in the flood zone or consult with National Flood Experts to get specific details for further underwriting.

Scenario 2: Transferring the flood policy at closing.

With FEMA's new flood insurance rating program Risk Rating 2.0, it's possible to transfer ownership of a flood policy at closing. Your insurance broker can work with the seller's insurance broker and process the paperwork for a change in ownership of the policies so that you may continue carrying forward their pricing for the coming years.

If a property is in an X-zone and voluntary flood policies are being held, the pricing is far less than a new one. National Flood Experts can help involve the appropriate parties to evaluate if this is a beneficial scenario in your case.

Scenario 3: Map change during ownership — new buildings in SFHA.

Flood maps only change in most areas of the country every 10-15 years, but when they do, they can bring new properties into the SFHA and issue new flood insurance requirements for those property owners now affected.

If this requirement is not met, force-placed insurance will be put in place, which is often more expensive than a standard flood policy. This scenario can also happen in reverse, where buildings are removed from the flood zone post-map revision, which would then drop the lender requirements for flood insurance. If you have any buildings required for flood insurance or are curious about potential flood zone changes, talk with National Flood Experts today!

Scenario 4: Changing of flood insurance requirements during a refinance.

With the changing of lending terms, there can also be a change in lending program insurance requirements, specifically for flood zones. If a refinance is part of your business plan, talk to National Flood Experts to evaluate what solutions may exist. If a Letter of Map Amendment (LOMA) is possible for your property, not only will those current and future lender requirements with Fannie/Freddie no longer apply, but the appraised valuation of your property should also increase.

Scenario 5: The flood zone touches only the corner of a structure.

If any part of a structure is touched by the SFHA or 100-year flood zone, a flood insurance requirement must be passed down to the buyer. Lenders will still require flood insurance even if only a small area is touched by the flood zone. However, once a LOMA is issued, the approved structures will be marked as an X-zone and will no longer require flood insurance.

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