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A way around new flood insurance bill

Real Estate Broker/Owner with South Beaches Real Estate Professionals BK 652174

Would really appreciate your input.

By now everybody has heard about the new Biggert - Waters flood insurance bill and how it will devastate the coastal area and crash the real estate market.

In short, flood insurance premiums will go up by 25% each year for homes in flood zones built before 1975 until they reach the  "true risk rate" unless you sell your home then the new buyer will have to pay "true risk rate" immediately.


For example

We are trying to sell a home right now for $256,000 in South Pasadena NOT on the water. The current flood premium is $1600 the buyer just got his new quote of $12,900. Needless to say, the buyer wants to back out of the contract.

In order to save the deal I just got very creative.

Instead of a straight forward purchase we could do a Lease Purchase ( not to be confused with a lease option). In a lease purchase the buyer and seller agree on a sales price and a sales date in the future. Buyer pays a non refundable down payment  and till sales date makes monthly payments that go towards the sales price.  

Till the sales date the seller still holds the deed and therefore the flood insurance policy. So it would be a 25% increase on his old premium and NOT full risk premium right away.

In our case it could be structured like this

Sales price        $256,000

Non refundable down payment    $256,000

Closing in 3 years

Buyer pays all cost for the house including taxes repairs etc

Seller pays flood insurance. That yearly amount gets divided by 12 and this is the monthly payment the buyer makes to the seller.

I have talked to tons of people in the real estate business and to government officials and insurance agents about this new flood insurance bill.

We all agree that this bill CAN'T be implemented and that our government will wake up in the next year or two and realize how big of a mistake they made. Unfortunately by then they will have destroyed the coastal areas and it is going to be too late.

Maybe my idea is a way around this new flood insurance bill until we get our government to understand what they are doing.

It is ridiculous that I even have to think around corners like that but this is the only solution I can see.

PLEASE give me your input.

What do you think?  

Could this work? 

Any other ideas?






Jeanne Dufort
Coldwell Banker Lake Country - Madison, GA
Madison and Lake Oconee GA

You need a cash buyer, and one willing tp risk the entire purchase price without taking clear title. Unlikely to happen in my market.

Sep 21, 2013 02:18 PM
Ralph Gorgoglione
Metro Life Homes - Palm Springs, CA
California and Hawaii Real Estate (310) 497-9407

Sounds like a very interesting work-around. The flood insurance bill sure does present significant issues that would, it implemented, send ripples through the real estate industry for years.

Biggert - Waters flood insurance bill
Sep 21, 2013 04:21 PM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Very interesting idea.  And, I agree about something having to be done about this bill.

Sep 21, 2013 09:58 PM

Sounds like the buyer gets a great deal. He pays for a house with a three year interest free loan and skirts the laws by not taking title. I wonder if the insurance company would have an out if something happened in that three years since a sale was actually contracted on day one. When I go to the Outer Banks in NC I am amazed that the homes there are always new looking. Every few years they are rebuilt after storms and are all subsidized by the rest of us who don't live on waterfront properties. Is there something wrong with this picture? If I had a bad driving record, i.e. more likely to have an accient, wouldn't my insurance co. charge me more in premiums or would you be willing to subsidize me and my higher risk? I think it is a fair law and overdue. I think people who choose and can afford the luxury of coastel living should pay for the higher risk of that luxury, it's part of the package, just like driving a Ferrari is going to cost more to insure than a Ford. Should we give you a new Ferrari each time you smash it up?

Sep 21, 2013 10:24 PM
Raymond Denton
Homesmart / Evergreen Realty - Irvine, CA
Irvine Realtor®

>>I think it is a fair law and overdue

Me too - for all the reasons you mentioned

Sep 22, 2013 01:41 AM

Cash buyers simply will not purchase flood. Our flood insurance claim history in Florida supports this decision. 

Sep 22, 2013 04:31 AM
Ellie Penaranda
239.776.5077 Downing-Frye Realty - Naples, FL
Naples Florida Real Estate - Waterfront & Beach Co

Anne, with you on something needs to be done - it seems some people have no idea of the implications of this law.  This is not about luxury homes, its across the board and will affect real estate values, yet again.     

Sep 22, 2013 10:59 AM
Katerina Gasset
The Gasset Group & Get It Done For Me Virtual Services - Provo, UT
Amplify Your Real Estate & Life Dreams!

Informative article that discusses A way around new flood insurance bill. Thank you for sharing Anne and Keep up the good work.

Sep 29, 2013 07:12 PM
Sharon Miller
RE/MAX Platinum - Crane Hill, AL


You mentioned your property as not being on the water, have you looked at applying for a LOMC (letter of map change) within your area's designated flood plain. There is a provision where property meeting certain criteria can be removed from being designated as in a reocurring flood plain. In many cases, the requirement for maintaining flood insurance is suspended. It might be worth looking into. A word of caution, check with your mortgage company before proceeding as they have input as to whether they will require flood insurance regardless. Hope this will help....

Sep 30, 2013 12:08 AM
Wayne Johnson
Coldwell Banker D'Ann Harper REALTORS® - San Antonio, TX
San Antonio REALTOR, San Antonio Homes For Sale

Anne-We were told of this new bill today and a State Farm agent came in to give us the news. Your soloution seems to defeat the intended purpose of the law. Best advice get a good real estate attorney and insurance agent before committing to this plan.

Oct 03, 2013 12:26 PM
Melissa Muse Wiggans
Real Estate Muses - San Antonio, TX
CRS, GRI, ABR - Real Estate Muses
Great idea Anne, keep it up and have a wonderful day ahead!
Nov 11, 2013 07:31 PM
Waynette Hoover Araj
Keller Williams Realty - Asheboro, NC
Connecting your Dreams with the Right Real Estate
This is very good information Anne. You laid it all out pretty well. Keep it up and stay the best!
Nov 18, 2013 06:59 PM
Petra Norris
Lakeland Real Estate Group, Inc. - Lakeland, FL
Realtor, Lakeland FL Homes for Sale
Thank you for sharing Anne,keep it up!
Jan 06, 2014 08:16 PM
Steven Pahl
Keller Williams Tampa Properties - Tampa, FL
Real Estate Consultant Tampa, FL 813-319-6423

This does sound like a reasonable workaround for this situation, hope it worked out for you.

Jan 08, 2014 01:42 AM
If there is a higher risk then the values should go down. If you are arguing that there isn't a big risk and that FEMA has inflated the cost to pay for Katrina and Sandy et al, then private insurance should be able to step in to provide a better price. The Govn shouldn't be involved in this anyway. They should not have been in this subsidy and insurance business. This is what caused the housing bubble to begin with and is what causes the inflated flood plain values! If people knew they had to pay for the risk they wouldn't have paid so much for the property or developed it to such a high level. Yes, they should drop 50% or whatever it is to reflect true cost of ownership. Let the chips fall where they may and get government out of it! Maybe my kids could afford to buy a house if the govn didn't do everything it could to try to keep the prices inflated. Let the market determine the risk and true cost of ownership instead of an inflated value backed by US Govn. In other words get off the the backs of the rest of us! I am sure the banks and Realtor groups will use their thug power to try to get the rest of us to pay the bill. I hope that congress has the where with all to stand up against all of it! But I am concerned they will back down. It is very hard for a democracy to continue to exist when everyone tries to use it to extort the labor of others. That is why we were supposed to have limited govn with free market. Instead we get manipulation and inefficient allocation of resources.
Jan 23, 2014 10:03 AM