If you are buying a home in any of the nation's hurricane-prone regions, keep one step ahead of storm forecasts.
Along with preparing for household survival, get ready for storm warning-spawned moratoriums on homeowners insurance -- moratoriums than can kill the deal.
Most insurance companies will not issue new homeowners coverage once the National Weather Service places an area under a hurricane watch or warning. Such a moratorium can remain in effect for 48 hours after the watch or warning has been lifted.
According to the National Weather Service a "hurricane watch" is an announcement for specific coastal areas that hurricane conditions are possible within 36 hours. When the swirling winds pick up to a sustained 74 miles per hour or higher (a Category 1 Hurricane on the Saffir-Simpson Hurricane Scale) the weather service issues a "hurricane warning." A warning can linger if high water or high waves persist even after the winds die down.
"Insurance companies will refuse to provide any type of insurance -- auto, commercial, homeowners, flood [sic], anything. Since you can't close the transaction without insurance, buyers will have to wait out the potential storm, hope for the best and wait for insurance carriers to give the OK to move ahead," said Jeff Lyons, general manager with RealEstate.com, a LendingTree, Inc. service based in Charlotte, NC.
After the storm, and even after the warning is removed without actual storm activity reaching the home, insurers may require a property inspection, even if the deal has already included an inspection.
"Even if the home didn't endure any damage, you should get a pre-sale inspection. With the amount of potential water damage that could have been sustained, sellers might find they have an unexpected problem with mold," said Lyons.
The task of the inspection should fall to the buyer, says Christine Karpinski, real estate investor, author and director of Owner Advocacy for HomeAway.com, formerly WVR Group, a network of vacation rental listing websites.
"Sellers have nothing to gain by doing an inspection. Seller's disclosure laws make this a pretty sticky situation if the seller were to get the inspection. Once the seller knows about it (damage) he or she has to disclose it. The buyer would gain much more if he or she had the inspection done," to protect their investment, she said.
She also said, "If a named storm is brewing you can back out of your contract without any legal or financial consequences."
The timing to buy flood insurance is also crucial, especially when it is not mandated.
Homeowners insurance doesn't cover flood damage, but coverage from the Federal Emergency Management Agency-administered National Flood Insurance Program does, up to a point -- $250,000 for the structure and $100,000 for the contents for a premium that averages about $370 a month.
You can buy flood insurance virtually anytime but there typically is a 30-day waiting period after paying the first premium before the policy takes effect. If you do manage to close a deal when inclement weather is brewing, chances are your flood insurance policy won't take effect until after the damage is done.
There are some exceptions to the 30-day rule.
Of course, if there is a storm watch or warning and the homeowners insurance company won't write a policy, flood insurance is a moot point, says Lyons.
Buyers who purchase homes in storm-prone areas, as well as in other areas with known high levels of insurance claims, may make the deal contingent upon getting a "CLUE" report, from Alpharetta, GA- based Choice Point an identification and credential verification service.
Available only to the home owner (and financial institutions rendering services to the home owner) at no charge or for up to $8, a CLUE (Claims Loss Underwriting Exchange) report for a given property contains both filed insurance claim information and insurance claim inquiries dating back five years. The data includes insured losses, loss date, type and amount paid.
Because the data is used, in part, by insurers to decide whether to issue a new policy, renew it or seek a rate increase, the report tells a potential buyer what to expect when attempting to insure a specific home.
"Be careful where you buy or build. Many homeowners insurance won't automatically cover water damage," said Lyons.
Since last years' worst-ever hurricane season and Hurricane Katrina's record $40 billion in insured losses, some insurers have also backed away from wind coverage that comes with a standard homeowners policy in less wind-driven storm prone regions. What coverage is available from special state-sponsored programs and private insurers can be an expensive add on.
In any case, potential buyers and current owners need to know what level of coverage the policy affords, including exactly what's covered, by how much and for which events. As well as guaranteed replacement coverage, sufficient to rebuild your home at today's costs, don't forget to check for adequate coverage for special possessions, including jewelry, heirlooms, computers, collectibles, home-based business equipment, detached structures and the like.
"Read the policy," says Karpinski.
If you don't understand the policy get help from your insurer, insurance agent or a community or social service or non-profit agency offering such assistance.
