Tucked away on the west side of the small town of Broad Channel in the middle of Jamiaca Bay is a narrow, dead end, street that goes by the name of West 12th Road. Those of us who live there know that the nice part about living in a small town is that when you are not quite sure what is going on, someone else always does!
[Peter J. Mahon West 12th Road, Broad Channel]
Imagine moving into your new Florida vacation home only to find a $24,300 flood insurance bill in your mailbox.
Welcome to the world of George and Karen McLaughlin, Maryland baby boomers who decided to follow other “snowbirds” south for the winter. They bought their piece of paradise on one of the many channels in New Port Richey, but recent flood insurance changes now frighten the McLaughlins more than the ever-present threat of a flood.
“Our agent thought it was an administrative error,” said McLaughlin, when he received that eye-popping bill for the property’s flood policy last October. ”A few days later they called to say there was no mistake.”
“What is shocking to me is that I believe my Realtor, my closing agent, my insurance company and my landlord, one of them should have known this was coming prior to my (closing), and that it was going to affect me,” he told Watchdog.org
McLaughlin told his story to Darn Blomquistto, a vice president of RealtyTrac, who wrote about the issue in the group’s online newsletter.
Property owners and real estate agents are beginning to feel the sting from what they call the”secondary effects” of flood insurance reform, known as the Biggert-Waters Flood Insurance Reform Act, signed into law in 2012.
That law overhauled the National Flood Insurance Program, created in 1968 to allow property owners in participating communities to purchase insurance protection from the government against losses from flooding by implementing changes to the way the program is run. As of April 2010, the program insured about 5.5 million homes, the majority in Texas and Florida.
The McLaughlin homeHide
The changes come at a time when the program’s deficit exceeds $24 billion. The Federal Emergency Management Agency, which manages the program, says the policy rate hikes will reflect the true risk of flooding and will make the program financially stable.
McLaughlins’ flood insurance renewal came with a whopping rate hike of $21,000. McLaughlin said he’s convinced FEMA intentionally kept consumers and real estate and mortgage companies in the dark about the rate increases.
The astronomical increase also took McLaughlin’s mortgage holder by surprise. An oversight of this magnitude tends to expose lenders to more risk because homeowners likely can’t afford to pay for the new policies.
“They told me I have 40 days from (the due date) going forward, and they will do what’s called a forced placement on me, and that could be triple. They told me it could be up to $60,000,” McLaughlin told Florida Watchdog.
“If I knew about this, I would have never bought the house” he said.
“But what surprises me is that no one else knows about it.”
McLaughlin said state politicians were unaware of the skyrocketing increase on the flood insurance.
“I called the governor's office and his staff was unaware of this bill. Pasco County was unaware of this. (Our) Florida state senator didn’t even know this exists. Then I contacted the local congressman in the district where I live in Maryland -- almost a complete in-flood-zone -- and his office was totally unaware of the bill.”
McLaughlin said he had hoped to get help from his Maryland congressman and FEMA, but after a while he got “zero” from them.
“I am so frustrated with the process of the federal government and their inability to know what the heck they are doing,” McLaughlin said.
McLaughlin’s story isn’t an isolated incident. RealtyTrac, the real estate information company and online marketplace for foreclosed and defaulted properties, said casualties of the reform are just beginning to surface, adding it could be catastrophic for some property owners.
“We have been hearing from quite a few people that this is an issue, and we want to raise awareness, and (show) how it (impacts) some housing markets across the country,” Blomquist told Watchdog.org.
Blomquist said that while the reforms primarily affect coastal properties, where the McLaughlins purchased their property, other areas of the state also are going to feel the squeeze.
TaxWatch, the research institute that promotes political and economic freedoms of Floridians, said in a report that Pinellas, Miami-Dade and Lee counties make up about 48 percent of the total subsidized and state policies most affected by the increases. In total, about 268,648 policies will be affected.
Jack McCabe, CEO of McCabe Research & Consulting, said South Florida’s real estate economy already is feeling the pain.
“I have Realtors and others calling and saying that this is already killing” deals, McCabe said. So far, commercial property and second-mortgage lenders have felt the pain.
The struggles come as no surprise to FEMA.
In response to an email sent by Watchdog.org asking the agency if it was aware of cases like McLaughlin's, a representative sent us to this link. There, FEMA indicates that about one-fifth of policies increased 25 percent to reflect the cost of the total risk, but the information sheet doesn’t explain why some policies have increased more than 700 percent from one year to the next.
“The problem is that people are also beginning to see increases in property taxes because the market prices have increased in the last 18 months,” McCabe said.
Florida lawmakers introduced legislation Dec. 17 to lessen the effects of the flood insurance reform, as well as encourage more private insurers to participate. The sponsors of the bill, Sen. Jeff Brandes, R-St. Petersburg, and Rep. Larry Ahern, R-Seminole, are confident private insurers will see there’s money to be made once they do the math. Since 1978, Florida property owners have paid $16 billion in premiums while only receiving $4 billion in claims payments.
Not everyone is sold on the idea.
“The insurance industry is in business to make money, but we don’t know if they will want to issue policies in high-risk areas,” McCabe said.
Florida isn’t the only state devastated by the new reforms. In September, Mississippi sued FEMA to get the courts to exempt the state’s property owners from steep rate increases.
McLaughlin, meanwhile, lives with buyer’s remorse.
“With my various contacts with senators and representatives in Florida and Maryland, I was getting no advice, help or support. I was on my own trying to figure out what I should do.
“I’m stuck with a house I can’t sell. I can’t fix up the house because it has no value to me now,” McLaughlin said.
And since no other private insurer has been willing to issue a policy on the property, the couple feel its only hope is to try to pay off the mortgage. Without a lender calling the shots, they can opt out of the flood insurance altogether and roll the dice.
“If I had known about it, I never would have done this,” McLaughlin said.