Just in time for Thanksgiving, the U.S. House of Representatives voted last Tuesday to approve House Resolution 2874 entitled the “21st Century Flood Reform Act.” The Act must still pass the Senate and be signed by the President before becoming law with a current expiration date just around the corner – December 8, 2017. But if the Act does become law, many may be giving thanks and a sigh of relief as it would extend the FEMA National Flood Insurance Program (NFIP) another 5 years by establishing a new expiration date of September 30, 2022. However, the proposed law also makes some other significant changes to the current NFIP which could affect property owners, developers, realtors, and real estate investors throughout Florida. So far, the Act appears to include many changes to current law, but here are two significant changes we think our readers would be particularly interested to know are working their way through the proposed legislation:
I.) Disclosure of flood risk information upon transfer of property.
The new Act would require state and local governments (if they desire to be eligible to participate in the NFIP) to pass new mandatory flood history disclosure laws governing the purchase and sale of real property. If state and local governments do not adopt such statutes or regulations by September 30, 2022, the Act mandates that NFIP insurance policies will not be issued in those areas of the country.
Specifically, the “21st Century Flood Reform Act” would require states to impose a “property flood hazard disclosure” duty on sellers or lessors of real property when transferring property. In nearly all situations involving the sale or transfer of real estate, sellers are usually obligated by contract to disclose known problems with a property to a buyer. However, this new “property flood hazard disclosure” would require that such a disclosure:
“(1) is made in writing;
“(2) discloses any actual knowledge of the seller or lessor of—
(A) prior physical damage caused by flood to any building located on the property;
(B) prior insurance claims for losses covered under the National Flood Insurance Program or private flood insurance with respect to such property;
(C) any previous notification regarding the designation of the property as a multiple loss property; and
(D) any Federal legal obligation to obtain and maintain flood insurance running with the property, such as any obligation due to a previous form of disaster assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act received by any owner of the property; and
“(3) is delivered by or on behalf of the seller or lessor to the purchaser or lessee before such purchaser or lessee becomes obligated under any contract for purchase or lease of the property.”
II.) New Definitions to replace “repetitive loss structure.”
The Act also would do away with the definition of “repetitive loss structure” and replace it with a new subsection of definitions that characterizes repetitive flood losses in more detail. The new proposed definitions would include the following:
“(A) MULTIPLE-LOSS PROPERTY.—The term ‘multiple-loss property’ means any property that is a repetitive-loss property, a severe repetitive-loss property, or an extreme repetitive-loss property.
“(B) QUALIFIED CLAIMS PAYMENT.—The term ‘qualified claims payment’ means a claims payment of any amount made under flood insurance coverage under this title in connection with loss resulting from a flood event that occurred after the date of the enactment of the 21st Century Flood Reform Act, but not including any claim that occurred before a structure was made compliant with State and local floodplain management requirements.
“(C) REPETITIVE-LOSS PROPERTY.—The term ‘repetitive-loss property’ means a structure that has incurred flood damage for which two or more separate claims payments of any amount have been made under flood insurance coverage under this title.
“(D) SEVERE REPETITIVE-LOSS PROPERTY.—The term ‘severe repetitive-loss property’ means a structure that has incurred flood damage for which—
(i) 4 or more separate claims payments have been made under flood insurance coverage under this title, with the amount of each such claim exceeding $5,000, and with the cumulative amount of such claims payments exceeding $20,000; or
(ii) at least 2 separate claims payments have been made under flood insurance coverage under this title, with the cumulative amount of such claims payments exceeding the value of the structure.
“(E) EXTREME REPETITIVE-LOSS PROPERTY.—The term ‘extreme repetitive-loss property’ means a structure that has incurred flood damage for which at least 2 separate claims have been made under flood insurance coverage under this title, with the cumulative amount of such claims payments exceeding 150 percent of the maximum coverage amount available for the structure.”
Stay up to date with “The F.L.U.D. Zone” as we continue to monitor the progress of NFIP reform. H.R. 2874 is now with the U.S. Senate and has been referred to the Senate Committee on Banking, Housing, and Urban Affairs. A link to a summary and status of the “21st Century Flood Reform Act” can be found here.