Rising flood insurance could hit homeowners hard

LOWER MAKEFIELD Ever since some faulty storm drains were repaired eight years ago, Lesia and Joe Pryor's Lower Makefield home has been flood-free, and the Pryors are confident their flooding issues have receded permanently.

But they have just encountered another potentially costly flood-related problem: When they put up their house for sale, they will have to warn prospective buyers about a hefty flood-insurance bill. That could knock down the sale price.

Under a new federal law the Pryors no longer will be able to pass along the federally subsidized flood-insurance rate that they have enjoyed for decades.

The new owners likely will have to pay double the current annual premium, or about $2,500.

"This could be a stigma that we'll have to disclose," Lesia Pryor said. "And they'll have to consider that and give us less for the house."

The federal government is phasing out subsidies that have kept premiums artificially low for older houses, which were built before the government began mapping flood-risk zones in the the 1970s.

The changes affect thousands of properties in the region.

The subsidy phase-out, which became federal law last year, is an attempt to help bail out the financially insolvent National Flood Insurance Program, inundated by red ink.

As of June, it was $24 billion in debt to the U.S. Treasury, largely the result of flood-loss payouts to victims of Hurricanes Katrina and Sandy, according to the Federal Emergency Management Agency.

For the taxpayer, that debt amounts to about $180 per household.

Congress has authorized the program to borrow up to $30 billion, and experts say that in all likelihood taxpayers will pick up the tab.

"Ultimately, Congress is going to have to write off that $30 million," said J. Robert Hunter, director of insurance for the Consumer Federation of America. Hunter ran the National Flood Insurance Program in the 1970s.

But he said the program eventually should become actuarially sound after phasing out artificially low premiums.

"It could take years to get there," Hunter said. "A lot of these homes should be paying two to three times what [they have been paying]."

The new law, known has the Biggert-Waters Flood Insurance Reform Act of 2012, already has created waves . The New York Times reported that a retired firefighter in Queens could see his premiums rise from a few hundred dollars a year to $15,000.

Nationwide, only about 20 percent of property owners who are required to have flood insurance pay the subsidized rates, according to FEMA.

In the eight-county region, about 9,500 property owners pay the subsidized rates, according to FEMA statistics. Bucks County has the most properties with artificially low premiums, about 2,300.

But assessing the local impact is complicated.

Todd Polinchock, a Doylestown-based real estate agent and treasurer of the Pennsylvania Association of Realtors, said a large percentage of homeowners already pay rates that reflect the full risk of flooding.

"It hasn't reared its ugly head for us," he said. "It's hard to predict where this will go."

Different properties will be affected at different times. And even then there are subtleties.

In January, the law terminated artificially low premiums for "non-primary residences" such as vacation homes.

Next month, subsidized premiums for businesses and for houses that have suffered repeated flooding will be phased out. The increases will be gradual, 25 percent each year, and will depend on several variables, including a property's elevation.

Houses in high-risk flood zones, such as the Pryors' in Lower Makefield, will lose their subsidies if they are sold after Oct 1.

The couple's home is situated between the Delaware River and the Delaware Canal. They said it flooded only once because some storm water drains failed to work properly.

The Pryors say their house does not belong in an area deemed a high risk of flooding, which requires anyone with a mortgage from a federally insured lender to buy flood insurance. Losing the subsidy when they sell would be unfair, they said.

"We're not happy at all about it," Joe Pryor said. "Because we don't feel we should be paying flood insurance. Period."