Flood insurance changes puts some homeowners underwater

MaryEllen Holden says her mother is facing a huge insurance premium increase on her Sullivan’s Island home because of changes to the federal program that covers flood damage.

MaryEllen Holden wants to honor her ailing mother’s wish to stay in her longtime Sullivan’s Island home.

But she might not be able to because of soaring flood insurance costs.

“I think I may have to sell, I don’t have the money for the increase,” Holden said Tuesday.

Holden describes a clerical error while taking out a reverse mortgage last year to help pay for hospice care for her 85-year-old mother, June Garrison. During that process, the flood insurance was dropped on the two-story home, requiring her to buy a new policy that would cost a staggering $43,000 for a year.

Holden only discovered her mother’s home was without flood coverage days ago when the mortgage company asked for proof of coverage.

The 1940-built home precedes the 1971 flood maps for Charleston County. Its “pre-firm” status meant it had been eligible for a subsidized federal flood insurance rate as long as the owner maintained coverage and abided by other requirements.

But Holden discovered the subsidy would no longer apply under to the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012. The law was designed to restructure the finances of the National Flood Insurance Program, part of the Federal Emergency Management Agency.

The 45-year-old program is billions of dollars in debt. On Tuesday, parts of the new law kicked in, increasing flood policies an average of 10 percent.

Under the overhaul, subsidies are being eliminated from second homes, rentals and businesses, as well as dwellings that have had repeated flood losses and lapses in coverage. That’s where Holden’s troubles come in.

She was told to get a new flood policy, which required an elevation survey. That revealed the true insurance risk of the home, which is across from beachfront properties.

“I knew from the surveyor that it was bad,” Holden said Tuesday.

The survey classified the property’s first floor as living space, though Holden said that area has been uninhabited since Hurricane Hugo damaged it in 1989.

She was quoted a rate of $43,000 per year under the federal program. That’s up from roughly $400 her mother had paid previously, which Holden said “was doable.”

“And if she was able to get grandfathered in and (had the policy) not lapsed, it would have still been expensive with the new policy, but doable,” she said. “It also wouldn’t have had to have a new flood elevation survey, and that’s what killed us because with that it shows she’s basically underwater.”

Holden’s story is an example of what some real estate experts say is likely to become a more common occurrence as homes change hands or policies lapse.

“Some will make the trade-off and they’re saying it’s not worth it and I will sell and move out and get a less expensive home without that high cost associated with it,” said Elaine Worzala, director of College of Charleston’s Carter Real Estate Center.

Nick Kremydas, S.C. Association of Realtors chief executive officer, was in Washington on Tuesday to brief a House committee on the issue.

“The one-two punch that is impacting our state is that FEMA is updating their flood maps,” he said. “This could have a pretty significant impact.”

The maps, which are scheduled to be released last year, could raise elevation requirements for structures in certain areas.

The situation is a double-whammy for homeowners already reeling from overall increases in property insurance premiums, which are separate from the flood program.

Owen Tyler, president of the Charleston Trident Association of Realtors, is encouraging residents to talk with an insurance agent and get an elevation certificate if they wish to sell.

“Every property is going to be affected differently depending on its individual circumstances,” he said. “In the near term, we anticipate most will see a slight premium increase due to the Biggert-Waters act, which requires FEMA to build a 5 percent reserve fund.”

Some Realtors have voiced concern that the law could stall some sales if buyers have to pay the full rate for flood coverage.

Some lawmakers on Capital Hill are seeking to delay the increases but no deal has been finalized.

As for Holden, she’s undecided on what she will do. She plans to meet with a real estate agent to see if she should sell the home, which was valued last year at $1.2 million.

“I don’t want to move her,” she said of her mother. “She’s ill and she wants to live out her final months in this house since it’s what she’s familiar with. She wouldn’t understand the insurance and why we are moving.”

Reach Tyrone Richardson at 937-5550 and follow him on Twitter @tyrichardsonPC.