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Thursday, February 5, 2015

First-time buyer - What do I need to know about floodplains?

The vast majority of buyers, first-time or not, will never need to be concerned about floodplains. However, if you are buying property on a river, stream, lake or ocean in an area that has flooded in the past, you will probably need to get a Floodplain Certificate and be required by your mortgage company to carry flood insurance.

So, what’s a floodplain? It’s a low lying flat area (usually located between two higher ground areas) beside or alongside a body of water like a stream, river, lake or ocean that may have been subject to flooding in the past, but which is likely to flood if a record rainfall or tide or ocean storm raises the level of that body of water. Sometimes those storms are referred to as 100-year storms; meaning that they rarely occur (once in a hundred years), but when they do, watch out, the area is going to flood. If you live in one of those areas you may be forced to get flood insurance in order to finance your home. The government runs a program to make such insurance available, but it is expensive.

What if I don’t have flood insurance? Well then you may be out of luck if your home is flooded and you lose everything. You may think that there would be some form of aid available from the government, but you’d be wrong. You’re just screwed and you did it to yourself. What does the flood insurance cover? I’m not an expert on that, so call an insurance guy, but generally it covers the damages and loss of property from water that comes into the house from outside due to general flooding of the area.

What’s not covered by floodplain insurance?  As many in the Detroit and surrounding areas found
out this year, it does not cover sewer backups into your basement nor does it cover water leakage from your own plumbing, such as a failed hot water tank. Your homeowner’s policy may cover that last instance, but many do not and none cover the sewer backup issue. You may be able to get a special rider to your homeowners policy to cover the plumbing issue and perhaps even the sewer issue (more likely the insurance company will tell you to have a back-flow check valve installed instead).

f you want to buy on the Ocean you may have to have all sorts of extra coverage for wind and water damage caused by hurricanes. Both of our Ocean coasts and the Gulf area are prone to those huge storms and many people just accept the fact that they might get wiped out as part of the price to pay to live on the ocean. People on the Great Lakes have to be concerned about large storms causing a wind surge that could breach seawalls and flood lakefront properties. There has also been cases of large chunks of ice being wind blown into lakefront properties and causing damage. The flooding along major rivers, like the Mississippi River and further west and north along the Red River in the Dakotas and Minnesota are epic and can affect huge areas.  Millions of people live in the floodplains of those rivers alone.

How can you tell if the house that you are considering buying is in a floodplain? Well, that is the sort of things that should be disclosed in the Seller’s Disclosure; but, you can also go to the FEMA Web site and look at their floodplain maps. You may be pleasantly surprised that many areas that you may have been concerned about are not considered to be flood risks and are thus not shown as floodplains. However, if your location shows up within one of those FEMA designated floodplains make sure that you understand the cost and availability of flood insurance for that property. 

Editors correction - After I published this post I received an message from a reader with a corrected explanation of the term 100-years storm, which is below.

Please note that the so-called 100-year flood is not a flood that happens once every 100 years. It is actually a flood that has a one percent chance of happening (or being exceeded) every year. That is a 26% probability over 30 years. The probability of a fire resulting in an insurance claim over the same 30 year period is less than 5%. If you are \"deeper\" into the floodplain, those probabilities go up. Referring to the 100-year flood makes people complacent by making them think that it is an extremely rare event. - William Nechamen

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