The National Flood Insurance Program Has Lapsed Monday January 22, 2018 01:49 pm

The National Flood Insurance Program Has Lapsed January 19, 2018

Prior Submitted Applications and Claims will Be Processed

The National Flood Insurance Program is under discussion in congress, and is tied to the continuing resolution for the budget.  As this failed to be passed this weekend, the National Flood Insurance Program has lapsed.  FEMA and Congress have never failed to honor the flood insurance contracts in place with NFIP policyholders. FEMA still has authority to ensure the payment of valid claims with available funds.

However, FEMA cannot sell or renew policies for millions of properties in communities across the nation until the program is reauthorized. Nationwide, the National Association of Realtors estimates that a lapse might impact approximately 40,000 home sale closings per month.  Our December post suggested that people should submit applications in advance.  Those opportunities are foreclosed at this time, but there are policies below regarding the continuing capacity of the NFIP:

Existing Policies Benefits or Transitions 

• Existing policies may be assigned during the lapse.
• Policies can be cancelled during the lapse in authority, in accordance with valid NFIP cancellation reason codes.
• Policies that are in force before midnight of the last effective day of authorization will remain in force until their expiration date, and claims under those policies are to be processed and paid as usual.
• If reauthorization is granted retroactively, the insurers can issue policies effective as of the date they receive payments (subject to applicable waiting periods), and claims for covered losses can be processed and paid (subject to provisions of the Standard Flood Insurance Policy (SFIP)).

Alternatives?

The congress has been working towards private provision of flood insurance, so there may be some alternatives for buyers.  Flood insurance is only required for purchases made with a federally backed loan.  Congress passed an act last year to require that the mortgage companies accept private flood insurance as well as NFIP policies.  The private market is not yet robust, and there are no predictions about how many policies they may sell during this lapse in the NFIP.

Calculating Date of Entering into New Flood Insurance Contracts

The date on which a company actually accepts an application for a flood insurance purchase or renewal and the applicable premium within 10 days of the application date will be the date of entry.

This would be the date and time of the loan closing if the flood insurance contract is related to the making, increasing, extension, or renewal of a loan so long as the company receives the application for flood insurance and the applicable premium within 30 days if paid by escrowed, title company, or settlement attorney or 10 days if not.

The NFIP has experienced a lapse in authority before. In most of these cases, Congress reauthorized the Program retroactively. However, until Congress acts, the NFIP is unable to provide coverage, and the attachment will  fully inform you of your options during this period.

 If you need more information, please contact your flood insurance agent.