The months of September and October, 2007 brought disturbing news from the Federal Emergency Management Administration (FEMA) to the residents of Pima County – especially those living in the Town of Marana just northwest of Tucson.

However, as usual, the media did not quite get their story exactly right and had the sky falling a little too hard and a little prematurely.  Claims were made that the most recent remapping of flood zones by FEMA went into effect in September or October.  This was simply not true.  The truth is that “DRAFT” map revisions were released on September 17, 2007 entitled, “Pima County Levee Failure Analysis”.

Levee Decertification - Northwest Marana - High Resolution (6 MB)
Levee Decertification - Northwest Marana - Low Resolution  (1 MB)

Levee Decertification - South Marana - High Resolution (8 MB)
Levee Decertification - South Marana - Low Resolution  (2 MB)

Though these maps are very likely to have some significant bearing on what the revised floodplain maps will look like in the future (sometime next year – perhaps by September 2008) – they are not the new floodplain maps.  The new official “Flood Insurance Rate Maps (FIRM) have not yet been published.  The latest published revisions are dated 2/8/99.

The other “fact” that has been reported in the media was a misstatement of FEMA’s policy regarding “grandfathering” opportunities for running out and buying flood insurance right away.  Here is the truth.  (In some ways, to some people – including this writer, this aspect of the story is what feels like extortion.  The idea that you have to buy something that they have officially said that you don’t need right now - nothing but a piece of paper is going to change – and, after that piece of paper changes, you will need it and it will cost a whole lot more.)  Anyhow, the following information is what is published by FEMA:

NFIP MAP & ZONE GRANDFATHER RULES

What is the Grandfather Rule?

A community will occasionally make structural improvements (dams, levees, etc.) to reduce the potential effects of flooding; experience new development aggravating the flooding situation, thereby expanding the floodplain; revise geographical boundaries resulting in the designation of additional flood hazard

areas; or provide information to better delineate the Base Flood Elevation (BFE) and/or flood insurance risk zones. When these situations occur, the Flood Insurance Rate Map (FIRM) is revised and republished.

The implementation of a new FIRM raises the question-- HOW DOES THE NEW MAP AFFECT FLOOD INSURANCE RATES?

To recognize policyholders who have remained loyal customers of the NFIP by maintaining continuous coverage and/or who have built in compliance with the FIRM, the Federal Insurance and Mitigation Administration has "Grandfather rules" to allow such policyholders to benefit in the rating for that building.

Pre-FIRM (construction prior to the date of the community's initial FIRM)

1. If a policy was obtained prior to the effective date of a map change, the policyholder is eligible to maintain the prior zone and base flood elevation as long as continuous coverage is maintained. The policy can be assigned to a new owner at the option of the policyholder.

2. If a building is Pre-FIRM and a policy was not obtained prior to the effective date of a map change, the applicant is eligible to receive the Pre-FIRM (subsidized) rates based on the new zone rather than the actuarial (elevation based) rates.

Post-FIRM (construction on or after the date of the community's initial FIRM)

1. If a policy was obtained prior to the effective date of a map change, the policyholder is eligible to maintain the prior zone and base flood elevation as long as continuous coverage is maintained. The policy can be assigned to a new owner at the option of the policyholder.

2. If a building was constructed in compliance with a specific FIRM, the owner is always eligible to obtain a policy using the zone and base flood elevation from that FIRM, provided that proof (refer to the Flood Insurance Manual, Rating section for acceptable documentation) is submitted to the insurance company. Continuous coverage is not required.

Preferred Risk Policies

1. Buildings written on Preferred Risk Policies are required to be located in zones B, C, or X on the FIRM in effect on the date of application and on the date of each subsequent renewal.

2. A building, which becomes ineligible for a Preferred Risk Policy due to a map change to a special flood hazard area, can be rewritten on a standard rated policy using zones B, C, or X.

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So, what is the rest of the truth?  Is there likely to be a remapping resulting in many properties being adversely affected?  Yes.  Will it make sense for some property owners to buy flood insurance coverage now?  Yes.

Actually, when it is possible to calm down and think about this whole situation rationally, it probably does make a lot of sense to have this coverage regardless of what some government engineer thinks about the possibility of flooding on any given piece of property.  And, as the following information shows, it is actually not that huge of an expense if you are not in a designated flood zone.  Even in a low risk area here in the desert, consider how water stacks up on flat ground during a heavy monsoon rain.  Almost every property does have some risk of flood damage.  Keep in mind too that regular homeowners insurance never automatically includes coverage for flooding.  No additional, unexpected household expense is ever welcome, but the following amounts can probably be handled by most Pima County residents.

Preferred Risk Policy Premium Table: Residential

PRP Premiums for ZONES B, C, X (PRE-/POST-FIRM)

These premiums are based on a Preferred Risk Policy (PRP) for a single family, one floor, no basement building with a standard $500 deductible. If you would like premium estimates for building-only coverage, you can find them at a non-PRP rate. Please note that purchasing building and contents coverage at PRP rates is usually more affordable than building-only coverage at the regular rate.

Important: Your individual situation may differ from the conditions used for this estimate. A flood insurance agent can provide you with an accurate quote for your specific property and contents. To contact a local flood insurance agent, use our Find an Agent tool.

¹ Add the $50.00 Probation Surcharge, if applicable.
² Premium includes Federal Policy Fee of $11.00.
³ Premium includes ICC premium fee of $1.00. Deduct this amount if the risk is a townhouse/rowhouse condominium unit.
⁴ Contents-only policies are not available for contents located in basement only.

Note: Condominium associations are not eligible for the Preferred Risk Policy. Individual condominium units are not eligible unless they qualify under one of the exceptions on page PRP 2 of the NFIP Flood Insurance Manual. The deductibles apply separately to building and contents. Building deductible, $500. Contents deductible, $500.

Replacement Cost Coverage is available for single-family dwellings that are primary residences. They must be insured to the maximum amount of insurance available under the program or no less than 80% of the replacement cost at the time of loss. Please refer to the policy or manual for further explanation and requirements.

And, for those that end up in a high risk flood zone:

High Risk Premium Table: Residential

Premiums for ZONES A, AE, A1-30, AO, AH (Pre-FIRM)

These premiums are based on a single family, one floor, no basement building with a standard $500 deductible.³ Your premium may be even lower if your community participates in the Community Rating System (CRS).⁴

Important: Your individual situation may differ from the conditions used for this estimate. A flood insurance agent can provide you with an accurate quote for your specific property and contents. To contact a local flood insurance agent, use our Find an Agent tool.

¹ Includes a Federal Policy Fee of $30 and ICC Premium.
² Includes a Federal Policy Fee of $30 only.
³ Higher deductible limits are available, up to $5,000 for single-family properties.
⁴ The Community Rating System (CRS) is a voluntary incentive program that recognizes and encourages community floodplain management activities that exceed the minimum NFIP requirements. As a result, flood insurance premium rates are discounted to reflect the reduced flood risk resulting from the community actions. To learn more about CRS and to see if your community participates, go to FEMA's CRS Web page, at http://www.fema.gov/business/nfip/crs.shtm.

Note: Replacement Cost Coverage is available for single-family dwellings that are primary residences. They must be insured to the maximum amount of insurance available under the program or no less than 80% of the replacement cost at the time of loss. Please refer to the policy or manual for further explanation and requirements.

The above information was taken from:

www.floodsmart.gov/floodsmart/pages/premiumesttables_prp_residential.jsp

Now, for those who may question what right anybody has telling you that you are required to buy flood insurance – here is the way it works.  Unless you own your home free and clear, the lender will definitely make you buy flood insurance if the floodplain designation changes and you find yourself in a rated area in the future.  They can and will do this because you authorized them to do so when you signed all that paperwork at closing when you purchased your home with their money.  In Arizona, lenders do not generally use a document called a mortgage (even though many of us still use that term conversationally), they prefer to use a Deed of Trust (it is much easier to foreclose on a borrower in default with a Deed of Trust than it is when a Mortgage was used).

Standard language in a Deed of Trust (Fannie Mae/Freddie Mac Form 3003) regarding the agreement to maintain proper insurance reads as follows:

5.         Property Insurance.  Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term “extended coverage,” and any other hazards including, but not limited to, earthquakes and floods,  for which Lender requires insurance.  This insurance shall be maintained in the amounts (including deductible levels) and for the periods that Lender requires.  What Lender requires pursuant to the preceding sentences can change during the term of the Loan.  The insurance carrier providing the insurance shall be chosen by Borrower subject to Lender’s right to disapprove Borrower’s choice, which right shall not be exercised unreasonably.  Lender may require Borrower to pay, in connection with this Loan, either:  (a) a one-time charge for flood zone determination, certification and tracking services; or (b) a one-time charge for flood zone determination and certification services and subsequent charges each time remappings or similar changes occur which reasonably might affect such determination or certification.  Borrower shall also be responsible for the payment of any fees imposed by the Federal Emergency Management Agency in connection with the review of any flood zone determination resulting from an objection by Borrower.

If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender’s option and Borrower’s expense.  Lender is under no obligation to purchase any particular type or amount of coverage.  Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower’s equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect.  Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained.  Any amounts disbursed by Lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument.  These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.

All insurance policies required by Lender and renewals of such policies shall be subject to Lender’s right to disapprove such policies, shall include a standard mortgage clause, and shall name Lender as mortgagee and/or as an additional loss payee.  Lender shall have the right to hold the policies and renewal certificates.  If Lender requires, Borrower shall promptly give to Lender all receipts of paid premiums and renewal notices.  If Borrower obtains any form of insurance coverage, not otherwise required by Lender, for damage to, or destruction of, the Property, such policy shall include a standard mortgage clause and shall name Lender as mortgagee and/or as an additional loss payee. 

In the event of loss, Borrower shall give prompt notice to the insurance carrier and Lender.  Lender may make proof of loss if not made promptly by Borrower.  Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender’s security is not lessened. During such repair and restoration period, Lender shall have the right to hold such insurance proceeds until Lender has had an opportunity to inspect such Property to ensure the work has been completed to Lender’s satisfaction, provided that such inspection shall be undertaken promptly.  Lender may disburse proceeds for the repairs and restoration in a single payment or in a series of progress payments as the work is completed.  Unless an agreement is made in writing or Applicable Law requires interest to be paid on such insurance proceeds, Lender shall not be required to pay Borrower any interest or earnings on such proceeds.  Fees for public adjusters, or other third parties, retained by Borrower shall not be paid out of the insurance proceeds and shall be the sole obligation of Borrower.  If the restoration or repair is not economically feasible or Lender’s security would be lessened, the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower.  Such insurance proceeds shall be applied in the order provided for in Section 2. 

If Borrower abandons the Property, Lender may file, negotiate and settle any available insurance claim and related matters.  If Borrower does not respond within 30 days to a notice from Lender that the insurance carrier has offered to settle a claim, then Lender may negotiate and settle the claim.  The 30-day period will begin when the notice is given.  In either event, or if Lender acquires the Property under Section 22 or otherwise, Borrower hereby assigns to Lender (a) Borrower’s rights to any insurance proceeds in an amount not to exceed the amounts unpaid under the Note or this Security Instrument, and (b) any other of Borrower’s rights (other than the right to any refund of unearned premiums paid by Borrower) under all insurance policies covering the Property, insofar as such rights are applicable to the coverage of the Property.  Lender may use the insurance proceeds either to repair or restore the Property or to pay amounts unpaid under the Note or this Security Instrument, whether or not then due.

It is possible that your Deed of Trust language could be a little bit different, but it is very likely to have the same requirements.  So, if FEMA moves forward with this insanity, lenders will have every right to require affected property owners to obtain federal flood insurance.

So, if your property is in or near the affected areas, you have a few decisions to make.  One possible decision may be to sell and move to higher ground.  That’s OK, but remember that you will have a legal obligation to disclose this information to any potential buyer.  Is all of this going to adversely affect property values?  We’ll just have to wait and see.

DI

DISCLAIMER

John P. Hale is owner and Designated Broker of Touchstone Residential Realty, Inc., 2485 West Tom Watson Drive, Tucson, Arizona 85745.  He has been a residential real estate agent in the greater Tucson Metropolitan area since 2000.  In addition to being licensed as a Broker rather than a salesperson, John holds the following designations awarded by the National Association of REALTORS^®:  ABR – Accredited Buyer Representative, ASR – Accredited Seller Representative, CRS – Certified Residential Specialist, and GRI – Graduate Realtor Institute.  And, John is among the very few that have been named, MRE – Master of Real Estate by the Arizona Association of Real Estate.