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Flood insurance suspended – what happens to closings?

Flood insurance may be needed

Flood insurance may be needed

New flood insurance policies have been suspended, not only in Pinellas County and Florida, but across the whole US.  Lenders require flood insurance for closings on homes that are in flood zones. If a closing is delayed due to lack of flood insurance, perhaps the seller can void the contract and perhaps the buyer’s lock will expire and either the buyer will have to pay a higher interest rate or perhaps may not even qualify at the higher rate.

While Congress has been wrangling over health insurance, they have not extended flood program funds and went on recess last weekend. Congress should readdress this when they return on April 12th.  The latest round of funding is tied to legislation that also extends some programs for the unemployed.  Why, pray tell, should flood insurance legislation be tied into unemployment programs???

When we queried our flood insurance lenders, they checked and told us that yes, a buyer can assume a seller’s flood insurance policy as long as there are no changes in coverage and that the payment allocation is worked out directly between buyer and seller. Now it comes back to the individual lender – will they accept this, rather than requiring a full year’s policy to be prepaid? I would hope so, even if they require additional escrow for the earlier renewal.

Carrie Ousley, with HUB Insurance, reports the following:

Three of the nation’s largest lending authorities have issued guidance to administer the federal flood insurance regulations during the current NFIP lapse in authority.  Although each lending authority notes considerations, the consensus is, in most cases, loan closings may still occur during the NFIP lapse with verification of the submission of a NFIP flood policy application and premium payment submission to WYO insurance provider. Lenders should follow all normal flood risk evaluations prior to closing and establish follow up practices to monitor full compliance upon the re-authorization of the NFIP program.  Lenders should become familiar with and follow the specific guidance offered by their lending authority.

Note the word MAY.  If you are planning to close on a property in a flood zone in the next couple weeks, be sure to discuss this with your real estate agent, your lender, and your title company.

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