[Tujuleez1]

If a waterfront property has an older house that sits below the Base Flood Elevation (BFE) set by FEMA, you run the risk of not being able to do a major renovation or addition to the house after buying it. This major constraint, capable of throwing all your renovation plans out of the window, is due to the “50 percent rule” set by FEMA, which has been adopted by many municipalities in Florida and around the country. It is a rule not to be taken lightly, lest you encounter road blocks to your renovation plan after buying a house.

The rule says that the cost of renovating a house that sits below the base flood elevation cannot exceed 50 percent of the value of the house structure. This means that you have to back out the value of the land and site improvements (which are and will remain in the flood zone) and consider only the house structure itself.

I contacted the Building Department in Punta Gorda, where we are looking to buy, about the FEMA rule. I was told if the costs of repairs or improvements are 50% or more of the building value (that value is determined either by the county appraiser or a state certified appraiser) you are required to bring the entire building up to code, including elevation.

As an example, if you own a house that is below BFE (almost 11,000 in Charlotte County alone are below BFE) that has a building value of $150,000 and you've done $70,000 in improvements over the last 5 years, it will only take storm damage of $5K to put you over the 50% limit. If a storm blows in, you will have to demolish the house and rebuild if cost to repair meets or exceeds the 50% mark, cumulative over 5 years.

Florida Statute 627.7011 covers Insurance Rates and Contracts. This addresses issues of "law and ordinance" and gives a homeowner some relief when things like local building codes cause an increase in the cost to fix damage caused from a storm.

But would an insurance company cover law and ordinance if, as in the example above, storm damage of only $5,000 means the building has to be demolished and rebuilt?

I can see that turning into a very long court battle.

Here's some links if you are interested:
Floodplain Management in Florida - Quick Guide
Florida Office of Insurance Management - Law and Ordinance Coverage

[HarryWho?]

The rule makes complete sense. As for the insurance covering extras, don't count on it. Usually there are Fema programs to help somewhat with added costs in the wake of a major event.

[StarfishKey]

This is only one of the multiple reasons why buying a below-flood house is such a poor choice. Those that are grandfathered in by virtue of their age as being eligible for FEMA insurance currently, no longer have that insurance subsidized. So it is costing increasingly more and more - in many cases that I know of personally $12-20k/yr - just to cover the house with flood insurance at all. The way the wind is blowing is very clear, they are looking for ways in the future to drop that eligibility for FEMA flood coverage altogether. If one cannot get flood insurance coverage, one cannot get a mortgage. Such a house in the future is going to be increasingly hard to sell back into the market, and is going to be worth less and less over time beyond more than just the lot value.

Not to mention, a hurricane doesn't care what year your house was built, if storm surge comes in and wipes out the first floors of coastal buildings, it wipes out your insured house the same as it wipes out the uninsured building next to it. You have a very good expectation of mold and water damage in the next decade, if not total loss, in a waterfront below-flood structure. For multi-story buildings, you are also looking at a good chance of the upper floors being compromised because the walls below are supposed to be built as break-aways.

I can think of 100 different reasons not to buy such a house, but barely 1 reason in favor of purchase. There is a reason they are so much cheaper than houses that are built to current code - it's because they are barely worth anything when one considers all the regulations placed on them, in addition to all the obvious danger they lay right in the path of. It's not a question of IF you will get flood damage, but WHEN.

Such a house is no better an investment than buying a lot and parking a trailer on it - and in the case of the lot, that might actually be a better investment, because then there is no cost to raze the old house, as new buyers will have in their mind when looking at your property for purchase in the future.

It is a huge mistake to buy below flood in this day and age of ever-stronger storms and warmer coastal waters. The property is likely to continue to depreciate in value for so many different reasons, a few of which are outlined in this thread.

It's like choosing to begin smoking in this day and age, despite the endless warnings of its eventual detriment to your health. If you want to go ahead anyway, that's your choice, but WHY throw your money and future away when there are so many better choices to make? People are doing their best to tell you what lies ahead, and a wise person takes all those different warnings seriously, and doesn't assume they will be the one person to get through decades of risky living choices unscathed.

[Tujuleez1]

The problem arises when the local governing body uses a different number than the insurance company in determining what is 50%. In Punta Gorda, they use a value determined by an appraiser. The insurance uses a value based on the policy limits. And that's where a homeowner can find themselves with a house that needs to be rebuilt and an insurance policy that won't pay for it.

We were looking at another house in Punta Gorda that was built in 1984. The elevation certificate showed 9.23'. Punta Gorda requires 9.25'. The house needed a lot of work that could have easily put it into the 50% Rule and it would have either needed to be torn down or get re-certified at a higher level.

We just came down from Chicago. All this is new to us. Our realtor should have informed us of all this months ago, but she didn't. It's cost us $1650 so far to learn the hard way.

[aridon]

There is no law and ordinance coverage on a flood insurance. Flood insurance through FEMA caps at 250k you would need excess coverage for over that amount. Law and ordinance on your standard policy which is endorsed on there will not cover you for flood loss. Which policy pays depends on what the proximate cause of the damage is.

[hotkarl]

Ugh. What a mess all this flood insurance crap has turned into.

[markjames68]

Originally Posted by hotkarl

Ugh. What a mess all this flood insurance crap has turned into.

As a lot of people in NY and NJ found out after Sandy. Plus there were a lot of people who never even bothered to get flood insurance because they never thought they were at risk.

At least in FL people talk about it. One of my key criteria when I bought here was that I was in Zone X. Developers these days are smart and raise the lots up so they qualify that way. I might be on an island if it gets flooded but at least I won't be under water.

[Tujuleez1]

Originally Posted by hotkarl

Ugh. What a mess all this flood insurance crap has turned into.

It's not just limited to flood insurance. Some municipalities have incorporated FEMA rules into their local building codes to the extent the 50% rule applies to any work done on your house. It doesn't have to be just from repairs from acts of nature. It can be that new kitchen you just paid for.

Appraised home value: $100,000
50% Rule limits: $50,000
New kitchen: $20,000
Max storm damage before 50% rule kicks in: $30,000

There are flippers here who improve a home just short of the 50% limit. Then they sell the property.

The new owners are still held to the 5-year cumulative rule. So if your A/C dies, that may put you over the limit and you will have to bring your entire house up to code.

Great for the flipper. Bad for the buyer.

[hotkarl]

So basically avoid anything in a flood zone.
Check!

I'm currently in a flood zone. Got hit by Sandy.
Where I live never ever flooded until Sandy but was mapped as flood.
When I was about to close on the house and found out I needed flood I laughed and said no thanks. Then quickly found out it was mandatory because of the mortgage.
In eight years my policy tripled. The biggest increases came over the last 2 years.
It has made my home unaffordable(well, aside from all the other NY nonsense, I already was sweating paying the mortgage but this officially put me over the edge).
Yeah definitely not buying anything zoned for flood ever again.

[Tujuleez1]

Originally Posted by hotkarl

So basically avoid anything in a flood zone.
Check!

Yes, and not just because of potential floods or the cost of insurance. The laws created around the whole mess could mean some local building department can say, "Back when they poured this slab your house is built on, they used wire mesh. Today we require rebar. You'll have to replace the slab."

I think any homeowner faced with the possibility you may hear, "You will have to bring your entire house up to current code," would make your knees buckle. It's a pretty stiff ordinance. Why not just say you have to meet flood and wind mitigation codes? Why make you bring plumbing, electrical, HVAC, etc up to code, too? It's almost like saying, "We only want new houses here."