Skyrocketing Flood Insurance Will Cause More Short Sales and Foreclosures

Real Estate Broker/Owner with Keller Williams Realty Texas Broker 524520

Austin Texas – When Short Sale clients Dan and Barb bought a retirement home with a conventional loan without the assistance of a buyer agent, they thought they were getting the deal of the century: a small 1 story, three-bedroom bungalow fixer-upper in a wooded neighborhood surrounded by scenic creeks for only $188,000. 

They found out after they went under contract through the Title Company the house was in a flood zone, so they had to pay for flood insurance required by their lender. However the small $520 a year federal government subsidized flood insurance premium their lender was requiring did not deter them from moving forward with the sale. In the years following, the flood premium started slowly creeping up year by year and then skyrocketed to yearly premium of $5,500. 
Their nightmare officially began. Their fixed retirement income could not absorb this $5,500 premium. And to make matters worse; the market value of the property dropped significantly to reflect this flood zone and flood insurance issue they were facing. They found themselves upside down in equity, unable to sell, and not being able to afford their lender required $5,500 a year flood policy either.

"I would never have bought this home if I would have known the flood insurance could go to $5,500 a year". "It's really put me in a dilemma," Dan, age 68, said of the premium spike for flood insurance on his Austin Texas home. "I didn't know what to do."

Throughout the lake, river, and creek infested Austin metro, homeowners now face similar sticker shocks, the result of new federal law reforms to overhaul the National Flood Insurance Program, which serves some 5.5 million policyholders nationwide and is now over $24 billion in debt after decades of catastrophic storms, including hurricanes Katrina, Isabel and Sandy. The problem has also been compounded by the Federal Emergency Management Agency's (FEMA) ongoing update of flood insurance maps, which have and will expose many more property owners to paying flood insurance for the first time. These home owners will get their surprise via a letter either from FEMA or from their lender informing them they are now in a flood zone and required to carry very costly flood insurance policies per their mortgage agreement.

So what is the problem in a nut-shell? The federal government got involved in flood insurance in 1968, when Congress passed a law to start a large-scale subsidy program that could offer more affordable flood insurance rates than the private market, which couldn't handle the mass of claims that occur after large storms or floods. However, now the federal government wants out of the subsidy system they created and cost them big-time and is asking the home owner to start paying market value for their flood insurance. So flood insurance will continue to rise as the government slowly gets out of this business altogether. The result? More home owners will find themselves in Dan and Barbs shoes (or worse) and thus more Short Sales and Foreclosures will occur do to this dilemma.

The good news is there is absolutely no reason for you to lose your home to foreclosure. You have many alternatives including Short Sale, Mortgage Modification, and Deed-in-Lieu of Foreclosure. And the U.S. government does not want you to be foreclosed on either. So much so that the U.S. Treasury Department started a cash incentive program in 2009, also known as HAFA (Home Affordable Foreclosure Alternatives) that provides approximately a $3,000 cash incentive to the short selling borrower/seller upon the successful completion of their short sale. The government rolled this incentive program out in 2009 because about 70% of homeowners that would-could qualify to do a Short Sale don’t even try (they just let their home go to foreclosure and destroy their credit when doing that is completely unnecessary). So if you have missed a mortgage payment(s) or are about to miss your first mortgage payment; call a real estate agent that specializes in Short Sale. Don’t wait; you have a very limited amount of time to act (especially if you live in Texas).

Thinking about doing a Bank Short Sale to avoid Foreclosure?

I can help you short sale your property and get back on your feet. Send me an e-mail at and I will contact you for a free consultation. When we talk, I will explain how the process works in detail and answer any questions you may have. Or, if you prefer, you can call me direct at (512) 970-0709.


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Many thanks for reading our Real Estate Blog. George Kiefer is a Real Estate Agent and Broker at Keller Williams Realty in Austin Texas. This is not intended as investment, legal, technical, or tax advice. This information is provided as a courtesy to our viewers to help them make informed decisions.The views expressed here are George Kiefer's personal views and do not reflect the views of Keller Williams Realty. George Kiefer is a licensed Broker in the State of Texas (Broker License #524520). He also holds the following designations: Certified Distressed Property Expert© (CDPE), Graduate REALTOR® Institute (GRI), Certified Luxury Home Marketing Specialist© (CLHMS), and The Institute for Luxury Home Marketing Million Dollar GUILD™. George Kiefer specializes in Luxury Home Sales, Seller Representation, Buyer Representation, Investment Property, Auction Representation, Hard Money Sales, Internet Marketing, Foreclosures, Bank Short Sales, Relocation Sales, REO Sales (property owned by lenders, government entities, or mortgage-backed securities funds), Multi-family property, Estate Probate Sales, Real Estate Consulting, and Broker Price Opinions.


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George Kiefer, Broker
Keller Williams Realty
Cell/Text 512-970-0709

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