For homes by the water, closing just got more complicated

In Clearwater, Florida, Bridget Neumann, an insurance broker, has spent the past week trying to replace a policy that no longer exists - at least right now. With the federal government shuttered, the National Flood Insurance Program has paused issuing new policies that many homebuyers need to secure their mortgages.

That means that the $4,000 annual flood coverage her client was expecting to pay for a modest, two-bedroom ranch is off the table. The only two quotes she found at private carriers are for $9,000 and $12,000.

Hundreds of miles away on Florida's Atlantic coast, a real estate agent plans to coach his clients on a workaround, asking the seller's insurance broker to sign over the home's existing flood insurance coverage to a prospective buyer. And on North Carolina's barrier islands, another agent is floating a rent-to-own arrangement - anything to keep a deal alive until a buyer can actually get flood insurance.

A week into a federal shutdown, one quiet corner of the housing market has seized up: The sales of homes in flood-prone areas. With the National Flood Insurance Program lapsed since Oct. 1, the government can no longer issue most new policies or renewals, leaving buyers who need coverage for their mortgage uncovered, and throwing deals that had already been negotiated into uncertainty.

"If I knew it was going to end in a week, we wouldn't be freaking out about it. But we don't know," said Neumann, a home and flood insurance agent at Florida Strategic Insurance.

The National Association of Realtors estimates that the pause could delay or derail close to 1,400 transactions per day until Congress restores the program. Private flood insurance is typically much more costly, and is not offered in many areas.

The federal program dates to 1968 when the National Flood Insurance Act was passed in an effort to provide coverage to homeowners, as private insurers began to pull out - a trend that started with the Great Mississippi Flood of 1927 and accelerated after Hurricane Betsy in 1965, the country's first $1 billion hurricane. Lenders require homeowners to have flood insurance if the home lies inside what the Federal Emergency Management Agency has designated as a 100-year flood plain, a geographic area that has a 1% chance of flooding every year.

Roughly 8% of all properties in the United States are inside a 100-year flood plain, according to Nadia Evangelou, a senior economist and director of real estate research for the National Association of Realtors. She said that as many as 8% of home sales could get snagged during the shutdown.

"These are not canceled sales, they're just delayed until the flood coverage can be reinstated," said Evangelou. "But of course, these delays still have some real effects."

Especially affected is Florida as well as the Gulf Coast, where an increasing number of ZIP codes require flood insurance and where private carriers often refuse to provide coverage or charge exorbitant rates. New York City, which has 520 miles of coastline, is especially exposed, with 15% of the land in a 100-year flood plain. This includes portions of Queens and Brooklyn adjacent to Jamaica Bay, as well as Staten Island.

Casey Prindle, a Keller Williams Realty agent, turned on his GoPro's camera in his office in Jupiter, Florida, a few days after the shutdown last week and recorded a YouTube tutorial. "So imagine this for a moment. You've been in contract for a month on a beautiful property," he said. "You've done everything you're supposed to do. You've done your inspection. You've done your appraisal. You've got the mortgage all approved, and a couple of days before closing, the lender calls you up and says, ‘Hey, you can't close on your property because you can't get flood insurance.'"

Prindle shared the tactic that he used to help a client a few months ago who, unrelated to the shutdown, was unable to secure flood insurance for their two-bedroom Spanish colonial in Fort Lauderdale: The seller reached out to their insurance broker and asked if the home's existing flood insurance policy could be assumed by the buyer.

On 33 occasions since 2017, Congress has been forced to pass emergency extensions to the flood insurance program, as lawmakers bickered over budgets and looming shutdowns threatened to disrupt it, according to a letter the National Association of Realtors sent to Congress before the shutdown.

In 2010, when the federal program lapsed, close to 47,000 transactions were disrupted over a one-month period, according to a report by the trade group.

The workarounds that agents are now using have been done before, but they add a layer of complication.

"We're all doing our best to close the deal with one another," said McKenzie Johnson, Keller Williams Hampstead's managing broker, whose region includes North Carolina's outer barrier islands, which were pummeled by Hurricane Florence in 2018. She said that several sales handled by her office are currently affected and one of the solutions she is proposing is a "per diem arrangement" - the seller essentially signs a temporary lease with the prospective buyer, allowing them to take possession of the home, but keep the old insurance in place.

Johnson remains optimistic. "It's nothing that a good margarita on the beach can't fix," she joked.

This article originally appeared in The New York Times.