Congress Lets Flood Insurance Program Expire

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The Senate left for spring recess without extending the National Flood Insurance Program (NFIP), leaving homebuyers in flood-prone areas in limbo.

The expiration of the program comes just as a rush of buyers are expected to try and finalize home purchases to take advantage of tax credits before the incentives themselves expire at the end of April. If flood insurance is required, they may not be able to close on those deals.

In a grim reminder of the damage a flood can inflict, New England homeowners are still reeling from an an epic March flood that overtook areas of Rhode Island (left), Massachusetts and Connecticut. Meanwhile, the South is bracing for the onset of hurricane season.Congress let the program expire on March 28 -- ror the second time this year, the . FEMA informed lenders that as of March 29 it could not write new policies. The House passed the extension but the Senate failed to act and now won't be in session again until April 12.

FEMA told insurance agents in a letter, "the NFIP will experience a hiatus - a period without authority to issue new policies, issue increased coverage on existing policies, or issue renewal policies - until Congress reauthorizes it." If you already have a policy, don't panic. This hiatus will not impact the 5.6 million flood insurance policyholders nationwide. Any policy that is in force will remain in force, but if you need a renewal, you'll have to wait.

The problem is that all insurance brokers must arrange for flood insurance through the Federal NFIP. There is no other option for purchasing insurance through your home insurance broker or agency.

That could cause problems for people in the South who want to renew before the new hurricane season starts on June 1. That's because there is a 30-day delay from the time the policy is purchased and when the coverage becomes effective. People in hurricane-prone areas could be without flood insurance this year thanks to the hiatus.

But it's not just the south: New England is just drying out after floods overtook areas of Rhode Island, Massachusetts and Connecticut in what has been called the worst flood in 200 years.

When Congress has failed to act in the past, it has reauthorized the program retroactively, but that won't help people trying to close on a house in the next few weeks until the Senate passes the bill.

So what FEMA is recommending is that if you are trying to close on a house during the hiatus period, you should work with your insurance company. Insurance companies can hold new applications and premium payments for processing until the program is reauthorized. As long as the reauthorization is retroactive to March 29, these polices can be written with effective dates as early as March 29, 2010. The big question is whether your lender will allow the closing until the reauthorization is in place.

This is also true if your renewal period comes up during the hiatus. Your insurance agent can take your premium payment and as long as Congress makes the reauthorization retroactive, your policy can be renewed on time.

If you are buying a home in a flood zone and must have insurance to close, contact your lender. You do have another option for flood insurance. A private insurer, Poulton Associates, does offer catastrophic insurance, which includes coverage for flood as well as earthquake and landslides. You can get a quote online. The insurer is based in Salt Lake City Utah and is licensed in all fifty states. Before buying this insurance be sure your lender will accept this as an alternative to NFIP.

Lita Epstein has written more than 25 books including The 250 Questions Everyone Should Ask About Buying Foreclosures.
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