Several of our law firm’s clients have been adversely affected by flooding caused by Hurricane Ida. We wish to offer our sympathy for all of those affected. This post will address the legal issues raised from this storm event and offer potential solutions.
Let’s consider the issues from a purchaser’s perspective. Prior to entry into a contract, due diligence should be conducted by the purchaser concerning potential property issues. Most notably, it should be determined before the contract is signed whether the property is in a flood zone, so that the purchaser can consider whether he wishes to take on this potential additional risk. In addition, if the property is in a flood zone, the lender will most likely require the purchaser to obtain flood insurance, which is quite costly and will be added to the monthly mortgage payment after closing. The mortgage lender will need to be involved because the value of the collateral, the house, may have been severely damaged and the lender will want to ensure that the property is rebuilt to its former state. Also, lenders may be willing to grant a payment forbearance to the purchaser, so that mortgage payments will not be due for a set period of time from borrowers affected by a disaster.
The following issues are of concern to a property seller when a significant flood event occurs. Properties are appraised during the purchaser’s loan application process to confirm that the property value supports the amount of the loan. Lenders will want to conduct an additional inspection after the flood to confirm that the property has not been damaged or otherwise lost value after the date of the appraisal. Concerned purchasers and their home inspectors may also be expected to make another evaluation of property condition.
As a practical matter, when there is property damage, photographs and videos should be taken documenting the elevation of the flood waters, property that has been damaged and the like. This is especially important because storm-damaged possessions should be discarded promptly in order to prevent the quick growth of mold. If the property owner recently moved into the property, an inventory of the items moved to the new residence should be obtained from the mover, so that it is clear which particular possessions were lost in the storm. Insurance claims should be made with the homeowner’s insurance company and the flood insurance carrier, if flood insurance was held on the property. The mortgage company should also be alerted that the property has been significantly damaged in the flood. FEMA should also be notified in the event that benefits are available.
Insurance that may be available to the purchaser to compensate for damage to property and possessions include both standard homeowner’s insurance and flood insurance. Should the insurance carrier be uncooperative in offering a fair settlement for the losses, an independent insurance adjuster may need to be located by the homeowner. Also, damage from storm water may not be covered unless the property owner also has flood insurance. As in the events that followed Superstorm Sandy, homeowners may have a long road ahead in evaluating the property damage, collecting payments from insurance companies and rebuilding so that the home will be habitable once again.
Most contracts to purchase real estate contain a casualty provision, which thankfully does not need to be employed very often. A casualty is a fire, flood and the like that significantly damages the property between the time of contract signing and closing. An experienced attorney should analyze the specific casualty clause in a contract presented by a party in order to determine whether the transaction will be able to proceed or be cancelled. If the transaction will proceed, the casualty clause will determine whether the seller needs to restore the property to pre-casualty condition, issue a credit to the purchaser against the balance of the purchase price due at the closing and how much time the seller has to remediate before the purchaser can cancel the contract.
If the parties have closed, the purchaser generally cannot pursue the seller for damages caused by a flooding event, unless the seller actively concealed information pertaining to the condition of the property. In addition, there are a few situations when a seller delivers a home warranty to the purchaser. However, such warranties more likely cover items such as appliances for malfunction or defect and exclude damage caused by natural disasters.
Our firm is available to assist those adversely affected by recent flooding events and wishes that its readers will swiftly recover.