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This article was published on: 01/01/2001

Real estate

Could it flood?

5 Myths of Flood Insurance

Knowing how flood determinations are made can help you ease tensions on both sides of the sale.

ROCKY HILL, CONN.--Homebuyers often see the requirement for flood insurance as a cost with little benefit. Real estate pros and loan officers can see it as an obstacle to closing a deal. Although everyone readily accepts the need for fire insurance, buyers often resist when they find out they need flood insurance, too.

“The process of making flood determinations is riddled with myths on both the consumer and the lending side," points out Dave Stokes, executive vice president of Integrated Loan Services, Rocky Hill, Conn., which provides flood determinations to lenders on the Web through a partnership with GeoLogix.

Here are a few of the more popular myths, according to Stokes:

Myth 1: Flood Determinations are cut and dry. It's just a matter of getting the FEMA maps.

Fact: Not so. "The data's not always together in a readily available form," says Mark Hamlin, president of GeoLogix. "You can't just read a FEMA map and assume that it'll have all the answers. About 5 percent of all properties require difficult and time-consuming work to make a determination.”

That work can mean combining FEMA's maps with the company’s own maps and computerized mapping system, he says. "Recently, we were working with a large regional bank that objected to the fact that some determinations were returned to them in a partial status (partially in a flood zone)," he says. "Our contact couldn't understand why we could not simply say the property was in or out. The problem was that parts of these lots were in a Special Flood Hazard Area (SFHA) and other parts of the properties were not (thus labeled NSFHA). To determine the proper designation, we needed to know the location of the structure on the lot, relative to the SFHA. That leads to the next myth.

Myth 2: The only determinant that matters is whether the parcel is designated as being in a SFHA.

Fact: Actually, a lot depends on the location of the house on the property. "The requirement for flood insurance is based upon the structure, not necessarily the parcel," points out Mr. Stokes. "If any part of the structure is in a SFHA, the lender must require the insurance. In addition, lenders can require the insurance any time they think there is a flood risk, whether the structure is in an SFHA."

Myth 3: Changes in flood hazard status are automatically added to the FEMA flood maps.

Fact: Not true. When a LOMA (Letter of Map Amendment) or a LOMR (Letter of Map Revision) removes an individual structure—or a whole area of a map—from a flood zone, the only people who are issued copies are the current property owner, the local community, and FEMA. The maps aren't reissued, nor is the data organized and available in a systematic manner.

Typically, borrowers have to show their LOMA or LOMR to the lender, which in turn provides the information to the flood company, which can then revise the property's flood status.

Myth 4: All FEMA flood maps are complete.

Fact: They aren't, says Mr. Hamlin. "The maps will omit streets and street names, addresses, or parcel information. Often, they don’t have information on LOMAs and LOMRs.” Therefore, flood determination companies generally have to obtain additional information in the form of street maps and tax maps from sources other than FEMA.

Myth 5: Once the flood determination is made, it stays with the property for the life of the loan.

Fact: Not true. FEMA can change the designation of a specific property or area. When an area goes from not being a flood zone to being a flood zone, "we in the industry take it as our responsibility to provide notices to lenders," says Stokes. "Then, the lenders notify their borrowers who are affected by zone changes."

At that point, no one's happy. The lender has no choice at that point but to require flood insurance. When borrowers don’t voluntarily purchase an insurance policy, the lender must require them to obtain flood insurance within 45 days of the time the change was reported.

For more information about the GeoLogix–Integrated Loan Services partnership, see the ILS Web site, or e-mail Dave Stokes at

Andrea Obston is president of Andrea Obston Marketing Communications, a P.R. and crisis management firm in Bloomfield, Conn.

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