Closings threatened as federal flood insurance expires

WASHINGTON – Jan. 22, 2018 – As Congress continues to work on a major renewal of the National Flood Insurance Program (NFIP), it has voted for short-term extensions of the existing program, and it intended to do the same when the last reauthorization expired on Friday, Jan. 19.
Rather than a stand-alone bill, however, NFIP reauthorization this time was an amendment to the larger bill that would have kept the government operating. Failure of that larger bill took all amendments with it, including the one reauthorizing NFIP.
As a result, NFIP can’t issue new or renewal policies until Congress reauthorizes or extends the program. This should not affect existing policies, renewal policies if they’re still within a 30-day grace period, or policies purchased prior to the program’s lapse.
However, it does impact buyers of flood-zone properties relying on a mortgage to close the deal. Without flood insurance, lenders probably won’t release funds, effectively postponing closing on these properties until Congress reauthorizes or extends the flood insurance program. In the absence of federal flood insurance, buyers do have a few options to keep their transaction on track, however.
• Wait out the government shutdown
Congress and the president could come to an agreement to extend NFIP within hours – but it could also take a week or more. In 1995, the longest government shutdown on record lasted 21 days, but most observers generally expect some kind of agreement this week.
However, it also depends on whether the NFIP extension remains an amendment to the larger government funding bill. If that doesn’t happen for some reason, the NFIP hiatus could last longer than the government shutdown. In December, the Federal Emergency Management Agency (FEMA) offered guidance to insurers should NFIP lapse.
• Policy assignment. If a home seller has an existing flood policy, FEMA allows the seller to assign it to the buyer. A transfer includes subsidized rates currently enjoyed by the seller, according to FEMA, but both buyer and seller should check with the insurance company and understand all the details before moving forward.
• Private flood insurance. In some areas of Florida, buyers can secure private flood insurance, which is not impacted by the NFIP expiration. If choosing private flood insurance, buyers should make sure their lender accepts that specific policy; and after NFIP is renewed, they should compare coverage and costs between both options.
Homeowners with an existing flood insurance policy are generally not affected by NFIP’s hiatus, depending on how long it takes to renew the program. In the past, Congress has made program renewals retroactive to the time when the flood insurance program expired.