RPPTL educates its members on the impact of the new law
By Jan Pudlow
George D. Shaeffer, a disabled retiree, does not live on waterfront property, but he has seen the flood insurance rates on his 900-square-foot house in Redington Beach, a barrier island in Pinellas County, climb from $2,171 to $15,946 a year.
He’ll have a hard time selling his house because the new potential buyer would have to pay the full $16,000 premium at the closing.
In Ft. Myers Beach, Jacquelyn Liszak-May owns the Sea Gypsy Inn, a small inn and gift shop. Her total premiums for the two buildings used to be $2,722 and jumped to $46,907 — a combined 1,700 percent increase to stay insured.
Those two examples are included in an amicus brief filed November 12 by Gov. Rick Scott and Attorney General Pam Bondi, supporting Mississippi’s lawsuit against the federal government’s National Flood Insurance Program rate hike. (Mississippi Insurance Department vs. U.S. Department of Homeland Security and U.S. Federal Emergency Management Agency, Case No. 1:13-cv-379-LG-JMR in the Southern District of Mississippi.)
“We are supporting Mississippi in their lawsuit against FEMA because the NFIP rate hike will not only hurt Florida families but will devastate our real estate market. President Obama should use every tool possible to help Florida families and we urge him to act immediately,” Gov. Scott said.
Bondi added: “Floridians are facing outrageous, unaffordable flood insurance premiums, and we support all efforts to protect policyholders from these devastating insurance rates.”
Meanwhile, lawyers who practice in the insurance and real estate areas are scurrying to keep up with changes in flood insurance when Congress passed the Biggert-Waters National Flood Insurance Reform Act of 2012, with a key provision — Section 205 — fully implemented on October 1 of this year.
The Florida Bar’s Real Property, Probate and Trust Law Section enlisted expert advice from Christopher Heidrick, of Heidrick & Co. Insurance and Risk Management Services on Sanibel Island.
Scheduled to speak at the RPPTL’s Executive Council meeting on November 22 in Sarasota, after this News went to press, Heidrick shared with the News highlights of his presentation that he also gave to the Collier County Bar Association on November 15.
“The headline message for professionals providing guidance to others is that BW-12 [Biggert-Waters Act 2012] is the law. It hasn’t been delayed. It hasn’t been repealed. There’s a lot of activity around it, but we need to provide guidance to our clients based on the law right now,” Heidrick said.
“The second main point is: The way I would summarize these impacts is uncertainty. Pay proper attention. There have been a lot of misleading headlines and erroneous reporting in the mainstream media. As a result, I’d guess if you polled 100 real estate attorneys, you would find they are not that much more conversant on BW-12 than the average citizen.”
Heidrick created a handy table that boils down who is affected and when (see chart above), and he outlines this historical chronology:
The National Flood Insurance Program, established by Congress in 1968, began using flood maps in 1974, and by 2004 had a cumulative premium of $25 billion with cumulative losses of $18 billion.
But when the levees failed in New Orleans in 2005, Hurricane Katrina brought a $16.2 billion loss.
In 2008, Congress could not agree on five-year reauthorization of the NFIP, and for the next four years there were 17 short-term reauthorizations. On July 6, 2012, Congress passed the Biggert-Waters National Flood Insurance Reform Act of 2012, reauthorizing NFIP for five years.
“We wouldn’t have this discussion if it weren’t for Katrina,” Heidrick said.
Then, on October 29, 2012, Superstorm Sandy hit New York and New Jersey, the most populated part of the U.S. shoreline, with another walloping $7.3 billion loss.
But it wasn’t until March 2013 that FEMA released guidance regarding BW-12, defining the full risk rate. And FEMA missed the April 2013 deadline for the affordability study called for in BW-12.
Trey Goldman, legislative counsel for Florida Realtors, noted that FEMA “was supposed to perform an affordability study, but they have yet to do it. Some people argue BW-12 should be delayed until the study is completed.”
On October 1, Section 205 took effect and remains fully in effect. As Heidrick explains, Section 205 addresses pre-FIRM [Flood Insurance Rate Map Participating Community] properties, which eliminates subsidized rates.
“Section 207 is the next shoe to drop,” Heidrick said, of this provision of the law taking effect in late 2017, addressing post-FIRM properties, eliminating grandfathering in the next map revisions, and resulting in premium increases applied one-fifth per year for five years.
“Here’s the issue with Section 207: This morning, I had a Realtor call and say, ‘My client is paying $464 for flood insurance. Do you see any issue with my client selling this property?’ If grandfathering went away, the flood premium would exceed $14,000 a year. If that buyer came to me, I would have to disclose this is what is going to happen. If Realtors didn’t disclose that, they could be exposed,” Heidrick said.
“That’s an example where we have uncertainty. It all depends on the next map revision. It’s community by community. It may be sooner for some areas and later for others.”
Meanwhile, Heidrick advises: “Our guidance is always get an elevation certificate. Without an elevation certificate, I can’t tell where the premium is going.”
With alarm in her voice, Ann S. Pellegrino, a foreclosure defense attorney in St. Petersburg who owns a home three blocks from the Gulf of Mexico, called The Florida Bar soon after Section 205 became effective October 1.
“All Florida attorneys must know their responsibility to disclose the draconian consequences of the Biggert-Waters Flood Act to clients who are purchasing property, experiencing foreclosure, negotiating loan modifications, negotiating short sales, and any other types of general real estate transactions,” Pellegrino said.
“This is important information, which will devastate all Florida homes and commercial properties, and the Florida economy in general. Because of the Biggert-Waters Flood Act, obviously, there is another Florida foreclosure crisis looming. Our state economy will be busted!”
Florida home and commercial buyers are walking away from real estate closing tables, Pellegrino said, stressing attorneys have an ethical obligation to know the facts and relay them to their clients.
“Realtors and attorneys must disclose to clients that they cannot afford to purchase properties or, in the case of foreclosures, that the clients cannot even afford a new loan modification.
“For now, we have to advise our clients to immediately get a new survey, an updated certificate of elevation, and to immediately contact their insurance agents for quotes. The quotes will go up and up over the next four years — until and unless politicians can pull together legislation to delay, amend, or repeal Biggert-Waters.”
State Sen. David Simmons, R-Altamonte Springs, chair of the Senate Banking and Insurance Committee, said he thinks it’s a problem that cries out for a state solution. He wants private insurance companies to step in as an alternative to the NFIP, and wants state regulators to be able to make it easier for private companies to do so. Simmons noted that Florida has leverage because it has paid $16 billion in premiums to the NFIP since 1978, and received $4 billion in claims.
But Heidrick said after Florida’s negative experience with Citizens Property Insurance Corp., he thinks there’s “no appetite” for Florida pulling out of the NFIP. “The other question is whether a mortgage company would accept private insurance,” he said.
And Goldman noted: “Flood insurance has been discussed in both House and Senate committee meetings here in Tallahassee. Florida contributes $4 in premiums for every $1 it gets back in claims, and some folks are pretty upset over that. There has also been discussion regarding how to get private insurers to write primary flood risk. It’s too early to tell where these efforts will lead.”
The RPPTL Section is trying to keep up with every development.
“We did a seminar last year before it was enacted and said there are potential consequences, and now that they are in the process of being implemented, we are seeing the effects,” said Wm. Cary Wright, chair of RPPTL’s Property and Liability Insurance Committee.
“Until they drew the lines and calculated the new premiums, I don’t think anyone understood the financial impact of it.”
As far as taking a legislative position, Wright said, “Since it is a federal law involving FEMA, there is no position that RPPTL can take with the Florida Legislature. However, the Florida congressional delegation is behind a move to delay the act or modify the impact on coastal residents.”
As Goldman said: “The changes are already impacting the way property is listed and sold. They may later begin impacting local government revenues. In certain communities and counties, many of the impacted properties are in close proximity.
“Over 50,000 properties will be impacted in Pinellas County, and another 47,000-plus in Miami-Dade. The number is 30,000 in Lee County and over 230,000 in just 10 counties. It’s hard to hide those numbers,” he said.
“As we know, the devil is in the details. Maxine Waters, whose name is on the act, has stated this is not what she intended. The National Associations of Realtors, and many other stakeholders, supported the five-year reauthorization of the flood program. Florida’s congressional delegation overwhelmingly voted in favor of the act.
“And yet, here we are.”