Before any federally regulated lending institution may issue a loan to an individual for the purchase of property, federal law requires that it first conduct a flood search and issue a document called a flood certification. This is a condition that must be satisfied before any lending institution can make, increase, extend or renew a loan secured by real estate or a mobile home. If the bank or lending institution in conducting the required flood search determines that the physical structure is located within a FEMA standard flood hazard area, the institution must also then provide notice to the purchaser of the property prior to closing. In fact, the law's exact language requires that the notice be given to the potential buyer "a reasonable period in advance of the signing of the purchase agreement, lease, or other documents involved in the transaction."
The notice to the potential buyer must including the following:
A) a warning, in a form to be established by the Director, stating that the building on the improved real estate securing the loan is located, or the mobile home securing the loan is or is to be located, in an area having special flood hazards;
(B) a description of the flood insurance purchase requirements under section 102(b) of the Flood Disaster Protection Act of 1973 [42 U.S.C.A. § 4012a(b) ];
(C) a statement that flood insurance coverage may be purchased under the national flood insurance program and is also available from private insurers; and
(D) any other information that the Director considers necessary to carry out the purposes of the national flood insurance program.
The bank or lending institution is then required to keep within its records a copy of the notification in it's records for the period of time that the bank owns the loan.
While the lending institution may hire an outside company to conduct the flood search or determination, the institution must still vouch for and take responsibility for the accuracy of the information provided by way of the flood certification.
It is important to note that unlike the seller disclosure and appraisal report previously discussed, the search conducted by the lending institution is only concerned with the actual structure's location within a flood zone or FEMA flood hazard area. This is because it is the structure or house's location withing the flood hazard area that triggers the corresponding federal requirement that the home be covered by flood insurance before the loan can legally be issued. The rest of the properties location in the flood hazard area is of no consequence as far as the lending institution is concerned.
Many lending institutions have attempted to avoid liability for their failure to perform a flood search or for conducting below standard flood searches by claiming that they owe no legal duty to the home buyer to provide accurate information or to even conduct these flood searches in the first place. While these arguments have had some success in federal court under the federal laws, they have left it open for State's to make their own determinations. Under Iowa law, the cause of action would be both for negligence and for misrepresentation and should be sufficient to get the case to the jury.
Showing posts with label Flood hazard area. Show all posts
Showing posts with label Flood hazard area. Show all posts
Thursday, June 12, 2008
Wednesday, June 11, 2008
Flood zone notification - Part 3 - The Appraiser
When a person or entity is in the business of providing information to another for that person's benefit, the provider of information has a duty to exercise ordinary care in ensuring that the information provided is truthful and accurate. According to the Iowa Court of Appeals, “[i]t is generally recognized that persons who supply information, in the course of their business or profession, for the guidance of others in their business, have a duty to use reasonable care in obtaining and communicating the information.” Greatbatch v. Metropolitan Federal Bank, 534 N.W.2d 115, 117 (Iowa Ct. App. 1995); citing Restatement (Second) of Torts section 552 (1977). This includes real estate appraisers conducting appraisals of residential property prior to the closing of a purchase.
Anytime a residential real estate appraisal is conducted, the appraiser is required to determine whether or not any part of the property is located within a FEMA special flood hazard area. This is obviously taken into consideration by the appraiser in coming to a fair market value assessment of the property. Often times appraisers will use computer software to assist in the search but like any software these programs are only as reliable as the person using and directing them.
When a breach of the appraisers duty is discovered, they will often times attempt to fall back on a claim that the home buyer is not their client and thus, they owe no duty to accurately report this data to the home buyer. This argument however is misplaced because all residential real estate appraisals are forwarded to the home buyer for their review and the appraisal must be in range with the purchase price for closing to take place. In the event that the property is located within a flood zone, this would naturally be noted in the appraisal report and/or reflected in the final appraised value. Additionally, The Iowa Supreme Court has held that the purchaser of residential property is justified in relying on an appraisal ordered by the lender for the purpose of completing the sale. According to the Supreme Court: "Even though the appraisal might be made primarily for the benefit of the lending institution, the appraisal should also reasonably expect the home purchaser, who pays for the appraisal and to whom the results are reported (an who has access to the written report on request), will rely on the appraisal to reaffirm his or her belief the home is worth the price he or she offered for it. The purchaser of the home should be among those entitled to rely on the accuracy of the report and therefore should be entitled to sue for damages resulting from a negligent report."
In the event that the real estate appraiser does not detect or accurately or timely disclose that the property to be purchased is located within a flood hazard area, they may be liable for a portion of damages incurred by the home buyer. Larsen v. United Federal Savings and Loan Association of Des Moines¸ 300 N.W.2d 281, (Iowa 1981).
Please see following posts for specifics on each required disclosure.
Seller Disclosures Real Estate Appraiser Disclosures Mortgage Lender & Bank Disclosures
Anytime a residential real estate appraisal is conducted, the appraiser is required to determine whether or not any part of the property is located within a FEMA special flood hazard area. This is obviously taken into consideration by the appraiser in coming to a fair market value assessment of the property. Often times appraisers will use computer software to assist in the search but like any software these programs are only as reliable as the person using and directing them.
When a breach of the appraisers duty is discovered, they will often times attempt to fall back on a claim that the home buyer is not their client and thus, they owe no duty to accurately report this data to the home buyer. This argument however is misplaced because all residential real estate appraisals are forwarded to the home buyer for their review and the appraisal must be in range with the purchase price for closing to take place. In the event that the property is located within a flood zone, this would naturally be noted in the appraisal report and/or reflected in the final appraised value. Additionally, The Iowa Supreme Court has held that the purchaser of residential property is justified in relying on an appraisal ordered by the lender for the purpose of completing the sale. According to the Supreme Court: "Even though the appraisal might be made primarily for the benefit of the lending institution, the appraisal should also reasonably expect the home purchaser, who pays for the appraisal and to whom the results are reported (an who has access to the written report on request), will rely on the appraisal to reaffirm his or her belief the home is worth the price he or she offered for it. The purchaser of the home should be among those entitled to rely on the accuracy of the report and therefore should be entitled to sue for damages resulting from a negligent report."
In the event that the real estate appraiser does not detect or accurately or timely disclose that the property to be purchased is located within a flood hazard area, they may be liable for a portion of damages incurred by the home buyer. Larsen v. United Federal Savings and Loan Association of Des Moines¸ 300 N.W.2d 281, (Iowa 1981).
Please see following posts for specifics on each required disclosure.
Seller Disclosures Real Estate Appraiser Disclosures Mortgage Lender & Bank Disclosures
Tuesday, June 10, 2008
Flood zone notification - Part 2 - Seller Disclosure
The seller of real property is required by law to complete and serve on all potential buyers, a written seller disclosure.
Chapter 558A of the Iowa Code requires that all real property transactions be accompanied by a written disclosure filled out and completed by the seller of the property. The seller disclosure must be provided to any potential buyers and must be delivered to the potential buyer prior to either the making of a written offer by the seller or acceptance of a written offer by the buyer. Delivery must either be in person or by way of certified or registered mail.
The law also sets forth specific requirements that each seller disclosure form must contain. This includes whether or not the seller knows if the property is located within a flood plain and if so, what the flood plain designation is. The minimum requirements for a seller disclosure are set forth in the Iowa Administrative Code and can be found at http://nxtsearch.legis.state.ia.us/NXT/gateway.dll/IAC?f=templates&fn=default.htm
It is important to note however, that a seller is only required to disclose conditions that are known at the time of the transaction. If they are unknown, there is a portion of the disclosure where that can be indicated. However, the seller is also required to amend the disclosure at all times if additional information is obtained that would put them on notice of the condition. Often times, prior knowledge of the condition can be established through prior permit applications, insurance claims and if it is a builder on new property, their own written documentation.
In the event that the seller does not disclose the conditions of the property including its location within a flood zone, the seller is liable to the buyer for the amount of actual damages suffered by the buyer.
Please see following posts for specifics on each required disclosure.
Seller Disclosures Real Estate Appraiser Disclosures Mortgage Lender & Bank Disclosures
Chapter 558A of the Iowa Code requires that all real property transactions be accompanied by a written disclosure filled out and completed by the seller of the property. The seller disclosure must be provided to any potential buyers and must be delivered to the potential buyer prior to either the making of a written offer by the seller or acceptance of a written offer by the buyer. Delivery must either be in person or by way of certified or registered mail.
The law also sets forth specific requirements that each seller disclosure form must contain. This includes whether or not the seller knows if the property is located within a flood plain and if so, what the flood plain designation is. The minimum requirements for a seller disclosure are set forth in the Iowa Administrative Code and can be found at http://nxtsearch.legis.state.ia.us/NXT/gateway.dll/IAC?f=templates&fn=default.htm
It is important to note however, that a seller is only required to disclose conditions that are known at the time of the transaction. If they are unknown, there is a portion of the disclosure where that can be indicated. However, the seller is also required to amend the disclosure at all times if additional information is obtained that would put them on notice of the condition. Often times, prior knowledge of the condition can be established through prior permit applications, insurance claims and if it is a builder on new property, their own written documentation.
In the event that the seller does not disclose the conditions of the property including its location within a flood zone, the seller is liable to the buyer for the amount of actual damages suffered by the buyer.
Please see following posts for specifics on each required disclosure.
Seller Disclosures Real Estate Appraiser Disclosures Mortgage Lender & Bank Disclosures
Flood zone notification - Part 1 - Introduction
Is your house located in a FEMA special flood hazard area or flood zone? If so, were you notified of that fact before making your decision to purchase your home?
Unfortunately, this is a question that is not asked by many people until after disaster strikes. The recent flooding in Mason City, Iowa City, Cedar Falls, Waterloo, Des Moines and throughout the State of Iowa, will likely have many homeowners asking these very questions. The FEMA flood hazard area is normally those areas within the 100 year flood way fringe as determined by FEMA (Federal Emergency Management Agency). Flood maps with this information can readily be obtained through FEMA or even the County Department of Public Works or the City depending upon where the property is located. Many builder plat maps will also note the 100 year flood way fringe.
In the unfortunate event that property is in a FEMA flood hazard area what if anything does that mean? There are a number of consequences to a property being located within a flood zone. First, and foremost, the property is at risk to flood. Second, if any portion of the structure or building is in the flood hazard area, federal law mandates flood insurance for the structure. If the structure is damaged by a flood and there is no flood insurance then federal aid is not likely to be available to the home owner. Third, there are extensive rules and regulations surrounding the building of improvements in flood zones. For example, Polk County will not permit any sort of a fence to be built on the property of a Des Moines home located in a flood zone because it could end up obstructing water flow in the event of a flood. There are also significant restrictions on building any "permanent" structures in those areas, most of which are not permitted.
So, what happens if it turns out that the property and/or structure is located within a FEMA flood hazard area and you either were not told of that fact or were misinformed? In such an event, there are at least three possible parties that may be held responsible for damages incurred. Both Iowa state and federal law require a number of parties to a real estate transaction to disclose to a potential home buyer that the home and/or property is located within a FEMA flood hazard area or flood zone. Additionally, industry standard of care requires that due diligence be used to determine whether property to be sold is located with in a flood zone and if it is so determined, that the potential buyers be notified of that fact before the sale is completed. The three most likely responsible parties are:
1. The Seller - the seller has a duty to accurately complete a Written Seller Disclosure that must be provided to the buyer prior to any offers being accepted. This disclosure requires the seller to disclose whether the property is in a flood hazard area;
2. The Appraiser - Part of a real estate appraisers standard of care requires that they make an independent inquiry as to whether the property is located within a flood hazard area; and
3. The Bank - Federal law requires that prior to granting a mortgage on residential real estate property, the bank must complete its own flood determination and may not issue a mortgage without proof of flood insurance, if any part of the structure is located in a flood hazard area.
If a homeowner determines that their residence is indeed located within a flood zone and any or none of those three disclosure requirements were not met or were incorrect, a potential civil cause of action against the responsible party may exist.
Please see following posts for specifics on each required disclosure.
Seller Disclosures Real Estate Appraiser Disclosures Mortgage Lender & Bank Disclosures
Unfortunately, this is a question that is not asked by many people until after disaster strikes. The recent flooding in Mason City, Iowa City, Cedar Falls, Waterloo, Des Moines and throughout the State of Iowa, will likely have many homeowners asking these very questions. The FEMA flood hazard area is normally those areas within the 100 year flood way fringe as determined by FEMA (Federal Emergency Management Agency). Flood maps with this information can readily be obtained through FEMA or even the County Department of Public Works or the City depending upon where the property is located. Many builder plat maps will also note the 100 year flood way fringe.
In the unfortunate event that property is in a FEMA flood hazard area what if anything does that mean? There are a number of consequences to a property being located within a flood zone. First, and foremost, the property is at risk to flood. Second, if any portion of the structure or building is in the flood hazard area, federal law mandates flood insurance for the structure. If the structure is damaged by a flood and there is no flood insurance then federal aid is not likely to be available to the home owner. Third, there are extensive rules and regulations surrounding the building of improvements in flood zones. For example, Polk County will not permit any sort of a fence to be built on the property of a Des Moines home located in a flood zone because it could end up obstructing water flow in the event of a flood. There are also significant restrictions on building any "permanent" structures in those areas, most of which are not permitted.
So, what happens if it turns out that the property and/or structure is located within a FEMA flood hazard area and you either were not told of that fact or were misinformed? In such an event, there are at least three possible parties that may be held responsible for damages incurred. Both Iowa state and federal law require a number of parties to a real estate transaction to disclose to a potential home buyer that the home and/or property is located within a FEMA flood hazard area or flood zone. Additionally, industry standard of care requires that due diligence be used to determine whether property to be sold is located with in a flood zone and if it is so determined, that the potential buyers be notified of that fact before the sale is completed. The three most likely responsible parties are:
1. The Seller - the seller has a duty to accurately complete a Written Seller Disclosure that must be provided to the buyer prior to any offers being accepted. This disclosure requires the seller to disclose whether the property is in a flood hazard area;
2. The Appraiser - Part of a real estate appraisers standard of care requires that they make an independent inquiry as to whether the property is located within a flood hazard area; and
3. The Bank - Federal law requires that prior to granting a mortgage on residential real estate property, the bank must complete its own flood determination and may not issue a mortgage without proof of flood insurance, if any part of the structure is located in a flood hazard area.
If a homeowner determines that their residence is indeed located within a flood zone and any or none of those three disclosure requirements were not met or were incorrect, a potential civil cause of action against the responsible party may exist.
Please see following posts for specifics on each required disclosure.
Seller Disclosures Real Estate Appraiser Disclosures Mortgage Lender & Bank Disclosures
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