My Community Has Been Suspended from the National Flood Insurance Program, Now What?

The National Flood Insurance Program has strict guidelines for being accepted into the program and even higher standards for staying in the program. A community could be suspended from the program for the following reasons

1. Failure to adopt proper guidelines
2. Failure to enforce proper guidelines

Let's briefly discuss some examples of each and then what 6 different impacts could be.  Some of proper guidelines are

NFIP Guidelines

1. Require permits for all construction
   
   
2. Review proposed development to assure that all necessary permits
   have been received from those governmental agencies from which approval is
   required by Federal or State law, including section 404 of the Federal Water
   Pollution Control Act Amendments of 1972, 33 U.S.C. 1334
   
   
3. Review all permit applications to determine whether proposed building
   sites will be reasonably safe from flooding. If a proposed building site is
   in a flood-prone area, all new construction and substantial improvements
   shall (i) be designed (or modified) and adequately anchored to prevent
   flotation, collapse, or lateral movement of the structure resulting from
   hydrodynamic and hydrostatic loads, including the effects of buoyancy, (ii)
   be constructed with materials resistant to flood damage, (iii) be constructed
   by methods and practices that minimize flood damages, and (iv) be constructed
   with electrical, heating, ventilation, plumbing, and air conditioning
   equipment and other service facilities that are designed and/or located so as
   to prevent water from entering or accumulating within the components during
   conditions of flooding.
   
   
4. Review subdivision proposals and other proposed new development,
   including manufactured home parks or subdivisions, to determine whether
   such proposals will be reasonably safe from flooding. If a subdivision
   proposal or other proposed new development is in a flood-prone area, any such
   proposals shall be reviewed to assure that (i) all such proposals are
   consistent with the need to minimize flood damage within the flood-prone area,
   (ii) all public utilities and facilities, such as sewer, gas, electrical, and
   water systems are located and constructed to minimize or eliminate flood
   damage, and (iii) adequate drainage is provided to reduce exposure to flood
   hazards;
   (5) Require within flood-prone areas new and replacement water supply
   systems to be designed to minimize or eliminate infiltration of flood waters
   into the systems; and
   (6) Require within flood-prone areas (i) new and replacement sanitary
   sewage systems to be designed to minimize or eliminate infiltration of flood
   waters into the systems and discharges from the systems into flood waters and
   (ii) onsite waste disposal systems to be located to avoid impairment to them
   or contamination from them during flooding.

Above we have shown some guidelines that could cause a community to be in violation of the program. Let's review some real life scenarios where this might take place.

Let's say a new neighborhood is being built and there is a lot of push back because development is slow. City or county officials decide to go ahead let the developers build without the work being permitted. This type of activity could cause a program to be removed from the program.

It's not uncommon for city and county officials to get this type of pressure after a flood. Let's says several buildings are substantially damaged remember that means more than 50% of the current market value. These homes are trying to get rebuilt and the work is done without a permit. Well not only could this cause a community to be removed from the program but disaster assistance from FEMA could be required to be paid back.

So what happens if a community is suspended?

Well there 6 things that will happen to community

1. No flood insurance available through NFIP
   
2. All flood insurance policies through NFIP cancelled at renewal
   
3. No Federal grants or loans for development may be made in identified flood hazard areas under programs administered by Federal agencies such as HUD, EPA, and SBA
   
4. No Federal disaster assistance may be provided to repair insurable buildings located in identified flood hazard areas for damage caused by a flood
   
5. No Federal mortgage insurance or loan guarantees may be provided in identified flood hazard areas. This includes policies written by FHA, VA, and others.
   
6. Federally insured or regulated lending institutions, such as banks and credit unions, must notify applicants seeking loans for insurable buildings in flood hazard areas that there is a flood hazard and that the property is not eligible for Federal disaster relief.

It's important to remember even though the NFIP policy is being cancelled that the bank could still require you to carry flood insurance. While some private flood insurance might be available to these communities but they basically loose any kind of government insurance or assistance. This can cause many properties to have what is called forced placed flood insurance coverage. Generally this coverage will only cover the loan amount, no contents cover, and no additional living expenses.

This can create a challenge for loans in the area as they must disclose that flood insurance through the National Flood Insurance Program is not available and neither is disaster assistance. As a result federal loans may not be available since they can not be guaranteed.

Maybe you have further questions about how this suspension is going to impact your loan or your property values. Then make sure to visit our website. You can also checkout our daily videos on our YouTube channel and Facebook page.