All community association boards want to be good stewards of the funds collected from their homeowners. Sometimes, when finances are tight, a board has to face hard choices about how to reduce costs. That might mean reducing services or even deferring needed maintenance for a period of time where that maintenance is not essential to safety or structural integrity. As with all contracts, boards want to find the insurance that best suits their community and offers the best protection—at the best price.
For those townhome and condo communities located in a flood zone, the question often arises whether they must maintain flood insurance. After all, they reason, it has been ten years and there has been no flood. Why are we wasting our money on something like flood insurance when we have other things that we could use that money for?
The problem with flood insurance has always been the cost. Recently, HUD has increased flood insurance options for homeowners with FHA mortgages that are living in special flood areas.
FHA requires that insured mortgages for properties in Federal Emergency Management Agency (FEMA)-designated Special Flood Hazard Areas (SFHAs) have flood insurance. Previously, only flood insurance obtained through the National Flood Insurance Program (NFIP) was permissible for FHA-insured mortgages, which severely limited choices for consumers.
Beginning November 21, 2022, HUD increased the flood insurance choices available to those with FHA-insured loans in areas that FEMA has designated to be at special risk for flooding.
Although flood insurance has been required for those with FHA mortgages located in flood zones, the options for obtaining that insurance have always been limited. With the recent change, people with FHA-insured mortgages will have more competitive options for flood insurance. “We know borrowers face affordability challenges right now, yet a flood can be devastating to a family who is not properly insured,” said Federal Housing Commissioner Julia Gordon. Now, the ability to choose a private flood insurance option may allow some borrowers to obtain policies that are less expensive or provide better coverage.
If you have questions about flood insurance and whether your community must maintain flood insurance, contact one of our experienced community association attorneys.