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NAR Seeks to Delay Flood Insurance Rate Increases, Issues Disclosure Guidance 

Under provisions of federal legislation enacted last year to extend the National Flood Insurance Program (NFIP) through 2017 significant changes are due to take effect starting this fall.  The revisions include new, higher premium rates; the exclusion of rate subsidies for owners and buyers of older properties built on or before December 31, 1974, or before the effective date of the initial Flood Insurance Rate Map (FIRM) published for the community; elimination of premium rate subsidy extensions for new and lapsed Pre-FIRM policies; and introduction of a new Reserve Fund assessment for most NFIP participants. 

Each of these program changes are scheduled to take effect as of October 1, 2013, but with support from the National Association of REALTORS® legislative efforts are underway on Capitol Hill to delay implementation of some of the pending rate increases. 

Specifically, under an amendment attached to the Homeland Security Appropriations Bill under consideration in the U.S. House of Representatives, a one-year delay is being sought that would postpone the phase-out for properties grandfathered under older rates in areas remapped into a higher-priced flood zone until October 1, 2014.  In addition, NAR is working with Senators Mary Landrieu and David Vitter of Louisiana to include a similar delay in the Senate version of a Homeland Security funding bill.

If these measures are not approved by federal lawmakers, renewals of NFIP policies for affected properties (principally those homes in that have experienced severe or repeated flooding and are located in low-lying areas designated as Special Flood Hazard Areas) are set to receive premium increases of as much as 25 percent.  Notably, neither measure affects non-residential occupancy buildings as defined in the NFIP, so owners of businesses and other non-residential property with subsidized rates can expect to see their policy rates climb by up to 25 percent, on October 1, 2013.

Since many NFIP policyholders could end up spending considerably more to obtain flood insurance as a result of these program revisions adopted under the Biggert-Waters Flood Insurance Reform Act of 2012, and inquiries could be made to REALTORS® as to the pending rate changes, NAR General Counsel Laurie Janik has prepared some legal guidance for brokers and agents to follow in the marketing and sales of property for which flood insurance may be required or for property located in areas where the purchase of flood insurance may be prudent.