Flood Update July 2015 – Transferring Flood Policies

Every week, we get at least one call asking if a flood policy can be transferred to a new buyer of a home. It’s a great way to make sure that a flood policy is in force as of closing, but a buyer does need to be cautious about what they are assuming.

Transferring a flood policy means that the current owner is signing that policy over to the buyer. The transfer paperwork must be signed by all sellers listed on the policy, and the transaction must be approved and completed by FEMA prior to the effective date of the change. If not, FEMA will not honor the endorsement. If that happens, you have just closed the transaction without flood insurance.

When the transfer takes place, no money is refunded from the flood policy itself. That means, a seller must be compensated through the settlement of the home and the premium prorated by the closing attorney.

Now that we have the logistics out of the way, what are the risks of assuming a flood policy?

The flood policy states that they will pay for direct physical loss from flood if you have paid the CORRECT premium. For example, if my policy is rated like I have enough venting in the garage or crawlspace, yet I do not, there could be a denial of a portion or all of my flood claim.

This, is the biggest risk that a buyer faces when assuming a policy. Transferring a policy can make it easier, but if not correct then the buyer could be faced with a major problem if there is a claim.

Now, I know what you are thinking, how could a policy be incorrectly rated?

The answer lies in the evolution of the elevation certificate. Over the last 15 years there have been major changes to the certificate itself. Until the time of Hurricane Katrina, the elevation certificate asked no questions about flood venting and FEMA asked nothing about it on the actual flood insurance application. The assumption was always there that venting was adequate on homes. Well, we all know what happens when we assume.

Today, the certificate asks about vents in the enclosure and garage. Many homes have to be altered to make sure the vents are low enough and have enough openings. Verification with a new certificate may be advisable to make sure that the home is correctly rated.

The other concern is the coverage itself. Is it adequate? What are the deductibles? What are the effective dates of the policy? Will the lender accept it? Getting a copy of the current policy early in the process, i.e. due diligence, is paramount, so that the lender can review the coverage being transferred. This gives the buyer ample time to respond if transferring the policy is not acceptable for the loan.

Transferring a flood policy should be a positive thing. It makes a transaction easier for a buyer and seller. Knowing the risk and logistics is vital to making sure that the new owner has a positive experience with the transaction and any potential claim.

Thanks as always, and we at the Rountree and Brady Insurance Agency thank you all for your continued support.

Jeff Brady

Rountree and Brady Insurance

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