Most of the waterfront home owners in the County went through the process of determining if flood insurance is a necessity for their property when they purchased or refinanced.
As you may be aware, the majority of our waterfront properties are designated as being in the flood plain as determined by the current Federal Emergency Management Act (FEMA) maps. What you may not realize is that almost 90% of the homes and other structures, when further analysis is done, do not actually require flood insurance.
FEMA contracted with the Corps of Engineers to complete the mapping and determine the Base Flood Elevations (BFE) for our County. FEMA then adopted those maps for regulating the insurance. The Base Flood Elevation for most of the County is 12 to 15 feet. The maps are two dimensional and don’t take into consideration individual property elevations, slopes and shoreline. They error on the side of consumer protection and use the “blanket approach”. Bottom line, if you have waterfront property, it is designated as being in the flood zone by FEMA unless proven otherwise by a Professional Land Surveyor.
Whenever you are using a Federally Insured institution as your lender, a Flood Determination is required. If the FEMA maps indicate that the property is in a flood plain, flood insurance is required and must be obtained prior to loan closing.
As of October 2013, a Flood Elevation Certificate is required by the insurance underwriters prior to issuance of a flood insurance policy. Most borrowers don’t question whether the insurance is actually necessary. As a result of the passage of the Biggert-Waters Act in October 2013, flood insurance rates through the National Flood Insurance Program will be increasing. It will be more important than ever to determine whether your property should have flood insurance coverage.
When purchasing a waterfront property, whether you are using a lender or not, the first step in determining whether you need the insurance is to obtain the Flood Determination Certificate. The lender will process one as part of the loan package but if you are a cash buyer, you may utilize one of the numerous services on the web for a nominal fee of $25.00. If this determination indicates the property is in a flood plain, you will want to hire a surveyor to apply to the Corps of Engineers for the Base Flood Elevation (BFE) for your property.
The fee charged by the Corps is in the range of $105- $350, subject to previous determinations in your immediate area and it typically takes 3-4 weeks. The insurance underwriters will require a BFE in order to issue coverage and if you are using a lender, they won’t close until you have a policy in effect. The BFE from the surveyor is also a key part of determining whether insurance is necessary. Once the BFE is obtained, the surveyor will then survey the property and determine the elevation of the lowest grade adjacent to the structure(s). This will confirm if the structures on the property should be insured or may be eligible to be removed from the flood zone. If the structures remain in the flood plain and you are using a lender, you must obtain flood insurance. If you are a cash buyer, it is a personal decision. One might want to review the forecasted Tsunami path for the County to determine if your property could be flooded and verify with your insurance agent that your policy would cover such a disaster. Chances are flood insurance will not cover global warming and sea level rise until, and if, they actually occur, and then the government would need to mandate the coverage. As in the case of your standard Hazard Homeowners Insurance, only the structures are insured, not the dirt.
If the structures as surveyed are above the flood plain, then the improvements and a portion, or the entire parcel may be eligible for a Letter of Map Amendment (LOMA). To obtain a LOMA, you should hire the surveyor again, as they process these on a regular basis and are familiar with the zillion forms required by FEMA. The surveyor will submit the application for a LOMA to FEMA and the process is 4-7 weeks. The total cost is approximately $1850 on average, which includes the BFE fee from the Corps of $105-$350.
I believe this to be money well spent as the $1850 represents about 50% of the annual flood insurance premiums on a typical San Juan County waterfront home. The time frames to complete a BFE and a LOMA are typically not within the standard purchase contract term. I quote a total of 90+ days to my clients so it may be necessary for you to close on your purchase and your loan and then obtain the LOMA after closing.
If you currently own waterfront property and are paying for flood insurance, it may be beneficial for you to move forward with the BFE and possible LOMA so that you can avoid paying premiums. It will also help expedite the sale of your property in the future as the LOMA runs with the land and can be used by a buyer.
Once you secure the LOMA, you will need to send that into your lender’s loan servicing department which may take a few more weeks. They will issue you a Waiver of Flood Insurance Notice which is your invitation to cancel your flood insurance. As in the case of many government programs, when you cancel, they will not prorate back your premiums for any unused term, so don’t count on a refund.
This article is for informational purposes only. As each property has unique characteristics, property owners should check with their licensed flood insurance agent to determine their options and their best solution regarding their flood insurance.
We have numerous surveyors in the County that process the applications for Base Flood Elevations and Letter of Maps Amendments, I recommend the following:
Bob Anderson – Star Surveying 378-5072
Bob Wilson – San Juan Surveying 378-2300
If you have any questions about our current real estate market, please be sure to contact me.
Merri Ann Simonson
Managing Broker – Sales Manager