Foreclosure Property and Flood Insurance: Critical Info Every Homeowner Needs to Know before It’s Too Late
With Tropical Storm Sandy — which is also being referred to as a hurricane, a superstorm and a Nor’easter — bearing down on the northeastern coast of the United States (affecting an estimated 60 million people), flooding is a foregone conclusion in many areas. If you’re a homeowner in foreclosure and/or own any kind of foreclosure property, whether or not you have flood insurance is/should be a real concern.
Questions about Property Foreclosure and Flood Insurance
Following are a few concerns you may have – and some insight into how to handle them.
Did You Know? Regular, run-of-the-mill homeowner insurance policies don’t include flood insurance.
Many homeowners – whether they’re in foreclosure or not – are surprised to learn this, and often find out too late (eg, after their home has been damaged by a flood and they contact their insurance coverage to cover damages). Proof?
Traveler’s – a major insurance agency – puts it simply, stating this about flood insurance:
. . . damages caused by floods are specifically excluded from all homeowners policies. You need to have a separate flood insurance policy in order to be covered.
If I own a home that’s in foreclosure – and I no longer live there – do I have to carry flood insurance on it?
Theoretically, if you own a home in foreclosure (whether you still occupy the home or not), you are responsible for carrying the applicable insurance on it. This includes flood insurance.
USAA, another insurance carrier, explains who needs flood insurance simply and perfectly on its website, stating:
Flood insurance is mandatory when you have a mortgage on a home in a high-risk flood area. Even if you live outside a high-risk area, don’t make the mistake of assuming you’ll never experience a flood. In fact, more than 25% of flood losses occur in areas considered at moderate or low risk.
HOWEVER, . . . this brings us to another question you may be pondering, which is . . .
If I declared bankruptcy to avoid foreclosure and my debts have been discharged, but my lender hasn’t foreclosed, do I still have to carry (flood) insurance – and pay for other fees associated with owning a home, eg, property taxes, etc.?
This is a sticky situation brought on by the foreclosure crisis; one we’ve tackled on this blog before. In the post, Foreclosure Advice: “My Debt Has Been Discharged in Bankruptcy but My Lender Hasn’t Foreclosed? Do I Still Have to Pay HO Insurance, Property Taxes, HOA Fees, Etc.?”, we stated:
A realtor who contacted a few bankruptcy attorneys about what to advise his clients to do if they’ve declared bankruptcy but the bank hasn’t foreclosed received conflicting advice, ie . . .
[One] bankruptcy attorney told me that my client who was recently discharged from the debt through bankruptcy technically didn’t own the property anymore and should drop the insurance and not concern himself with the status of the property anymore. However, I didn’t feel comfortable with this information. [So] I consulted yet another bankruptcy attorney who stated that until the bank forecloses, my clients are still named as legal owner of record and therefore remain responsible for the taxes, insurance, security and condition of the property.
We’re inclined to agree with the second attorney’s advice — strictly from a legal responsibility point of view.
Post continued below . . .
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If my lender has foreclosed on my home, do I still have to pay for flood insurance?
If your lender has foreclosed on your home – and completed the foreclosure process (this part is very important) — then no, you are not responsible for paying for flood insurance, or any other fees associated with owning the property (eg, property taxes, HOA fees, etc.).
Note: Many lenders start the foreclosure process these days, and don’t complete it. Unless and until the foreclosure process is completed, you are technically still responsible for it. This means you can be assessed fees by the county for not keeping up the lawn – and other problems caused by a vacant property (if you no longer reside in the residence).
As we stated in the post referenced above:
Unless and until your lender formally forecloses on the property, YOU, the homeowner, are still responsible for its maintenance and other fees.
We received a letter from our lender saying we needed to get flood insurance on a property we own in a “disaster-prone area” that is not our primary residence? Do we have to?
This actually happened to one couple and is quite common, especially in light of the foreclosure crisis and particularly in states like Florida where a lot of people own secondary residences which may be in foreclosure. It brings to light the issue of lender-imposed flood insurance – which can be exorbitant.
The husband in the couple this happened to was actually a New York Times journalist, who reported on his brush with lender-imposed flood insurance in the article, [Flood] Insurance Dictated by the Bank.
Even though this journalist’s property wasn’t in foreclosure, he did give some important insight into how to handle this situation. He stated that much depends on whom you speak with at your lender’s office, ie:
How you extricate yourself from this trap [lender-imposed flood insurance] depends on whom you talk to. . . . In our case, we resolved the problem the old-fashioned way — we spent four months talking to dozens of Bank of America employees. . . . Based on my experience as both a condo owner and reporter, I can attest that homeowners should not ignore these letters [instructing them to get flood insurance] and must be vigilant in sorting [it] out . . .
How much does flood insurance cost?
The average premium for a standard flood policy is $500 per year. But remember, you could qualify for a Preferred Risk Policy and pay as little as $119 per year. [Source: FloodFacts.com.]
Also note that if you bundle your policies with your insurance carrier (ie, have homeowners, car, life and other types of insurance with the same company), you may be eligible for discounts.
When NOT to Buy Flood Insurance
There are certain situations when you should NOT purchase flood insurance – on a foreclosure property – or any other property you own. This article also details when you should purchase additional insurance to cover situations caused by floods, but which won’t be directly covered by your flood insurance (I know, seems crazy – but better to be informed than surprised after a flood).
More News from Around the Web on Property Foreclosure and Flood Insurance
Is a lender obligated to maintain flood hazard insurance on a foreclosed property if the customer (homeowner) isn’t paying? Short answer: Yes. Most lenders tack these fees onto the balance owed on the mortgage. If they ever work out a mod, refinance, etc., with the homeowner, lenders can/may recoup these fees.
Flood insurance premiums could double in four years because many properties required to carry flood insurance are in areas hit hard by foreclosures (eg, Florida).
Before purchasing flood insurnace, consult a qualified insurance professional — in your area — to find out the best coverage for your family and your dwelling.
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Copyright ©2012 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author. Legal Disclaimer: The information dispensed on this blog is not to be taken as legal advice; it is for general purposes only. Please consult a qualified attorney — in your jurisdiction — before taking any action based on the information listed here.