When putting together an offer for a buyer, one thing that is often overlooked is insurance. Depending on the property’s location, and whether financing is involved, the requirement to purchase Homeowner’s Insurance and/or flood Insurance may change. Although insurance is an important consideration even if financing is not involved, a buyer that is required to have insurance could face some additional hurdles to closing if unprepared.
Both the “AS IS” and the “Standard” FR/BAR Contracts, provide the following with regard to flood insurance:
“If Property is in a “Special Flood Hazard Area” or “Coastal Barrier Resources Act” designated area or otherwise protected area identified by the U.S. Fish and Wildlife Service under the Coastal Barrier Resources Act and the lowest floor elevation for the building(s) and/or flood insurance rating purposes is below minimum flood elevation or is ineligible for flood insurance coverage through the National Flood Insurance Program or private flood insurance as defined in 42 U.S.C. §4012a, Buyer may terminate this Contract by delivering written notice to Seller … and Buyer shall be refunded the Deposit.”
This provision protects buyers of certain waterfront/water-adjacent property from having to go through with a purchase when they are not able to obtain flood insurance; however, it does not give any consideration to what the cost of flood insurance could be, and doesn’t give the buyer an opportunity to terminate the contract if they are able to obtain flood insurance even at an astronomical cost.
Thankfully, a savvy agent can ensure that their buyers benefit from the use of an additional tool available for their protection in the form of a Rider to the Contract – Rider H. Homeowner’s/Flood Insurance gives buyers the ability to terminate a Contract and receive a refund of their Deposit if they are unable to obtain homeowner’s insurance coverage from a standard carrier at a price set forth in the Rider. The Rider also separately addresses Flood Insurance and gives buyers the same right – they can terminate their Contract and receive a refund of their Deposit if they are unable to obtain flood insurance through the National Flood Insurance Program, or a private flood insurance provider, at a certain dollar amount or threshold tied to the purchase price.
There could be any number of reasons homeowner’s insurance or flood insurance could be higher than expected for a Property, including past claims for the Property, so it is important that buyers be made aware before they are locked in. If you have any questions regarding this Rider or any other Riders to the Contract, we encourage you to reach out to your trusted local real estate attorney.
Berlin Patten Ebling, PLLC
Article Authored by Natasha Selvaraj , Esq. firstname.lastname@example.org
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