By: Patricia B. McMurray and Danielle Aymond | Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
In July 2017, Louisiana REALTORS® ("LR") published an article on “"Obtain and Maintain Insurance Requirements" to provide information to REALTORS® about the perils of failing to purchase flood insurance for property that had previously flooded and received federal money. In addition to the article, a sample “Flood Insurance Purchase Requirement Addendum” form ("Addendum 1") was provided to REALTORS® for assisting sellers in complying with the requirements of the obtain and maintain law and the duty to notify it includes.
To supplement the article, in December 2018, LR published another article to further explain this legal requirement and its application.
Since such time, several REALTORS® have contacted LR to inquire about how to find the necessary information to complete the sample Addendum 1 when their sellers do not know the amount of FEMA aid received by previous owners of the property. In a State that sees flooding every year, and no region is safe from water intrusion, it is no surprise this is a wide-spread concern. This article provides additional information on Addendum 1 and an alternative sample Addendum ("Addendum 2") when the information is not available to complete the initial sample Addendum 1.
The law requires that in the event of the transfer of any property that has previously received disaster assistance, and that property is in a Special Flood Hazard Area (SFHA) , the transferor/seller shall, not later than the date on which such transfer occurs, notify the transferee/buyer in writing of the requirements to:
(A) obtain flood insurance in accordance with applicable Federal law with respect to such property, if the property is not so insured as of the date on which the property is transferred; and
(B) maintain flood insurance in accordance with applicable Federal law with respect to such property.
If the transferor/seller fails to disclose, and the property floods again and the buyer did not have flood insurance, the transferor/seller shall be required to reimburse the Federal Government in an amount equal to the amount of the Federal disaster relief assistance provided with respect to the property.
FEMA has published in policy that the property owner must obtain and maintain flood insurance coverage for at least the amount of disaster assistance they receive from FEMA. Applicants may satisfy the insurance requirement by purchasing private insurance or a policy through the NFIP.
What are the Potential Amounts?
The statute does not require the actual amount of assistance be disclosed by the seller, however buyers may want to obtain this information to weigh the costs of minimum required policies. There are three major programs that Louisiana has historically used for disaster assistance for residential property:
Individual Assistance up to $33,000
Hazard Mitigation up to $100,000
CDBG-DR up to $150,000
These three sources of disaster assistance can apply to flooded homes in Louisiana spanning back well-past the days of Katrina. Any of these programs can be combined in various ways and can total a minimum insurable amount of up to $283,000.
Commercial property can be much more expansive. It may have qualified for FEMA Public Assistance which can reach funding in the millions for large projects. The requirements to insure are also vastly expanded as the law requires insurance regardless of the SFHA and regardless of the type of hazard.
How to Find Out:
When a seller or buyer wants to know the minimum amount required for a flood policy, a public records request for this information can be made to retrieve such information from the following:
Individual Assistance or Public Assistance | FOIA request to FEMA:
Hazard Mitigation | Governor’s Office of Homeland Security and Emergency Preparedness:
CDBG-DR | OCD-DRU Office:
The Bottom Line
In response to REALTORS® requests, an additional sample addendum to the “Louisiana Agreement to Buy and Sell can be downloaded. Although Addendum 1 provides the most complete information to buyers, Addendum 2 will put buyers on notice of the legal requirement of the Obtain and Maintain notice, and may be used when the Seller was not the actual recipient of disaster assistance and does not know the amount of disaster assistance the property received. Addendum 1 is also attached and can be used when the seller received FEMA funds or has information regarding the FEMA funds received by the previous owners. Addendum 1 and Addendum 2 are sample forms. You may wish to create your own form in consultation with your counsel. Please note disclosure of the "obtain and maintain" requirement must be included in the Act of Sale.