Many people may not know whether, or to what degree, their communities are subject to flooding. The Federal Emergency Management Agency, through its National Flood Insurance Program, compiles and disseminates information on the flood hazard potentials of communities across the nation. Thousands of communities have been studied, mapped and assigned flood zone designations based on their propensity for flooding. This information is not only of great interest to individual property owners but also to real estate investors and lenders.
Flooding is one of the leading causes of property damage in the United States. In response to escalating annual losses from flooding, Congress enacted the National Flood Insurance Act of 1968 which created the National Flood Insurance Program (NFIP). The NFIP is administered by the Federal Emergency Management Agency (FEMA) and its subsidiary agencies. This federal program enables property owners in participating communities to purchase flood insurance. Participation in the NFIP is based on voluntary agreements between individual communities and the government. To date, more than 18,000 communities with significant flooding potential have elected to join the program. If a community agrees to implement floodplain management measures designed to mitigate flood risks in hazardous areas, the federal government will make flood insurance coverage available to owners of insurable property within that community. Moreover, the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 require the purchase of flood insurance as a condition of receiving federally related financial assistance for most acquisition and construction purposes in areas identified by FEMA as having special flooding hazards.
As a result, it is important for individual property owners, as well as real estate investors and lenders, to determine whether property is located in a community participating in the NFIP and the flood zone designations, if any, of the property.
FEMA conducts studies throughout the country to determine the location of flood hazard areas. A Flood Insurance Study (FIS) involves in-depth analyses of a community's hydrologic and hydraulic data, river-flow, precipitation, tidal surge, wind velocity, land development, topography and other available scientific data. In addition, FEMA organizes local public meetings for purposes of gathering all relevant information needed to ensure accurate study results.
In conjunction with these studies, FEMA produces flood maps identifying a community's flood hazard areas and the levels of risk associated with each area. Communities are provided copies of their flood maps, which commonly are placed on file in local planning, zoning, or engineering offices. Members of the public may review these maps to learn the flooding designation(s) of a particular parcel of land. Flood zone maps routinely require revisions due to changing weather patterns, land development and other variable factors. In this regard, property owners who believe existing flood zone maps are inaccurate may take a proactive approach by engaging a civil engineer to produce flood elevation certificates or other evidence to show that their property is outside the 100-year floodplain. However, the process may be time consuming and expensive and the burden will be on the property owner to persuade FEMA that the existing flood zone map is inaccurate.
The most widely distributed flood map issued by FEMA is the Flood Insurance Rate Map (FIRM). Several areas of flood hazard are displayed on the FIRM. One of these areas is the Special Flood Hazard Area (SFHA). The SFHA is a high-risk flood area, commonly termed the 100-year floodplain. This term, however, often is misconstrued. Contrary to popular belief, it does not mean that during a 100-year period, there is a 100-percent chance that flooding will occur. Nor does it mean that if flooding does occur, it will not reoccur for another 100 years. Rather, the SFHA or 100-year floodplain is an area having a one-percent or greater chance of flood occurrence in any given year. This means that over a 100-year period, there is a 63.5-percent chance of flooding in a SFHA. According to FEMA, a structure located in a SFHA has a one-in-four chance of sustaining flood damage during the term of a 30-year mortgage. As a result, flood insurance is a prerequisite for obtaining federally insured loans for structures situated in SFHAs.
SFHAs are subdivided into zones beginning with either the letter V or A. V-lettered zones are coastal hazard areas, such as beach-front properties, where flooding risks are heightened due to wave velocity. V designations traditionally have been accompanied by a number (V1-V30) indicating base flood elevations. For the sake of simplicity, however, new and revised FIRMs are replacing all numbered V zones with the designation VE.
VO zones are coastal areas of shallower water depths ranging between one and three feet.
Property located in A-lettered zones is subject to flooding from rising water and may be located near lakes, rivers or streams. These zones also have been coupled in the past with a number (A1-A30) indicating base flood elevations. They, too, are being redesignated simply as zone AE on new and updated maps.
Zone A may be further divided into zones AH, AO, A99 and AR. Zone AH represents areas of ponding subject to shallow flooding. Zone AO also encompasses areas of shallow flooding typically due to sheet flow on sloping terrain. A99 zones are special hazard flood areas where local flood control programs have been partially completed. The AR prefix signifies that a community's once accredited flood protection system has been discredited but is in the process of being restored to provide base flood protection.
In addition to the SFHA, areas of moderate and minimal flood risk are depicted on the FIRM. Property in these lower-risk areas may be vulnerable to flooding as a result of severe, concentrated storm activity combined with inadequate local drainage. Moderate flood risk areas are designated as B zones, and minimal risk areas are classified as C zones. New and revised maps redesignate both zones with the letter X. NFIP insurance coverage is available in these lower risk areas.
Zone D is the FIRM designation for areas where flooding hazards have not been studied but where flooding is nevertheless possible. Typically, these areas are not heavily populated. The mandatory flood insurance requirements generally are not imposed in D zones but coverage may be available.
The FIRM designations discussed above have become a customary disclosure item on the list of survey requirements required by institutional, conduit, and federally insured lenders. The wary real estate professional will have this information in hand well before getting the unwelcome news regarding mandatory flood insurance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.