The bill, H.R. 3370, passed the House earlier. U.S. law does not officially change until the president signs the bill into law, but President Obama’s staff says he plans to do so.
Of specific interest to Realtors: The bill no longer requires the cost of flood insurance to readjust upon the sale of a home in an area where the Federal Emergency Management Agency (FEMA) subsidizes policies.
“We applaud Congress for taking action to bring the much-needed certainty our real estate market has been missing since Biggert-Waters went into effect, and provide immediate relief to Florida homeowners,” says 2014 Florida Realtors® President Sherri Meadows, CEO and team leader, Keller Williams, with market centers in Gainesville, Ocala and The Villages. “It’s wonderful to see bipartisan support for a crucial piece of legislation that strengthens our economy.”
“There’s much to celebrate,” agrees Frank Kowalski, 2005 Florida Realtors president and also an insurance agent. “Once the bill becomes law and companies offering flood insurance are able to tweak their computers, they should be able to write NFIP flood insurance policies as they did before.”
Bill details (H.R. 3370)
- Home sales: As a result of the Biggert-Waters Flood Insurance Reform Act of 2012, the cost of flood insurance immediately rose to its actuarial rate at the time of a home sale, and the buyer could be required to pay many thousands more per year than the seller. The just-passed bill, however, maintains flood insurance price continuity, and the purchaser is treated the same as the current property owner.
- Reinstates grandfathering: All post-FIRM (flood insurance rate map) properties built to code at the time of construction are protected from rate hikes that result from new data – the flood maps created after the fact. Also important: The grandfathering stays with the property, not the policy.
- Annual rate increases capped at 18%: FEMA cannot raise flood insurance rates within a single property class beyond 15 percent per year. And it cannot raise a single homeowner’s rate more than 18 percent per year. (Before Biggert-Waters, the rate was 10 percent; until the new bill is signed, it’s 20 percent.)
- Annual rate increases capped by home value: The bill requires a 5 percent minimum annual increase on pre-FIRM primary residence policies that are not at full risk, but it also says FEMA must try to minimize the number of policyholders that are charged an increase greater than 1 percent of their flood coverage. For example, a home covered for $250,000 in flood damage might face a yearly increase no higher than $2,500.
- Policyholders refunds: Buyers who purchased pre-FIRM homes and were already charged higher flood insurance rates than the seller should be refunded the price difference once the bill is signed.
- Annual surcharges: A new fee will also be introduced to all flood policy holders – an annual surcharge of $25 for primary residences and $250 for second homes and businesses – until subsidized policies reach full risk rates.
- Affordability study funded: Biggert-Waters required FEMA to conduct a study to determine the rate impact on homeowners, but FEMA never completed the study by the mandated deadline. The new bill funds the study and gives FEMA two years to complete it.
- Home improvement threshold: In addition to homebuyers, higher flood insurance rates could kick in if an owner renovated or remodeled a home beyond a set level. Under current law, it’s an improvement equal to 30 percent of the home’s value. Under the new law, the improvement level returns to its historic norm of 50 percent.
- Additional provisions: The new bill includes several other provisions, including preserving the basement exception, allowing for payments to be made in monthly installments and reimbursing policy holders for successful map appeals.
A word of caution
With a nod to the Biggert-Waters law that unexpectedly led to higher rates for some owners, Kowalski says the “devil is in the details” of the new bill, and it’s “worthy of celebration, but guarded celebration,” he says. “Until FEMA comes down with the guidelines, we all have to wait with bated breath.”
For example, people living in a relatively low-risk Flood Zone X can, according to Kowalski, secure a $250,000 flood policy for $414 per month. However, it’s unclear in the bill if those rates could go up – and the $25 fee for all homesteaded owners would probably apply to them. “Are they considered grandfathered in at lower rates?” Kowalski asks. “It’s not clear yet.”
Kowalski also expects phone calls from homeowners who have already paid a higher flood insurance rate, asking when they might expect a refund since the new law is retroactive.
“But how or when do they get a rebate?” Kowalski asks. It won’t be right away. “We can’t refund money until NFIP (National Flood Insurance Program) tells us the guidelines for doing that, and some pessimists say it might be 12 to 18 months.”
© 2014 Florida Realtors®
Sarasota Area Real Estate Specialist