The dreaded flood plain

Here's a little story of a recent event in my life. This isn't directly related to real estate investement in this case, but easily could be related to any house purchase.
My wife and I recently purchased a home for ourselves to live in that was being sold as-is with no disclosures. We knew the place was in pretty rough shape, but the price was around 20% below the market value once we fix it up. Here are the things we knew about or discovered in the inspection.

• Needed new paint and general cosmetic work
• Needed squeaky floors repaired, new flooring, etc.
• Updating in kitchen, baths.
• Needed a shake shingle roof removed and replaced.
• Signs of termite damage.

These were planned expenses. It was not until after we negotiated with the seller to pay for termite treatment and most of our closing costs, that we received an appraisal that the lender had ordered. The lender told us that the house was located in what FEMA calls a SFHA (Special Flood Hazard Area) and that they could not give us the loan unless we obtained flood insurance. I contacted my insurance agent and was told that flood insurance was generally about the same price as the homeowners policy (in our case probably 700-900 a year). Also we would have to have an engineer measure our elevation for the insurance company (who knows how much that would cost). We were already near the top of our budget and did not expect the extra expense here on a monthly basis. We were trying to decide whether or not to try to get out of the contract, when I decided to spend a day on the phone researching this.

I discovered that the only way to get out of having the insurance was if you could prove that the FEMA maps are wrong and that your house is not in the flood plain. The only way to do that is to hire a professional who can survey your land and submit a LOMA (Letter of Map Amendment) and then FEMA will no longer require you to have insurance. The odds are that your house really should be in the flood plain though and you'll just be out the money for the survey.

I started calling around, trying to get information on my houses elevation and eventually ended up talking to an engineer at the city where my house is. I was informed, that actually the city had done their own study recently and determined that many houses listed by FEMA in the SFHA should not have been. They said that they were submitting these to FEMA and a new map would likely be released within the next year. This left me with the expectation that at worst, I should only need flood insurance for the first year. Still I hadn't expected the extra wasted $700-900.

They actually gave me the phone number of the engineers who did the study and I gave them a call. They let me know that for $250 they would submit their findings to FEMA for me so that I could get an exception for my house right now and avoid insurance all together. Better still, my realtor (and investment partner) is going to get the seller to pay that fee as well. I am now very relieved, but thought I'd share this experience for others who might not have ever thought about these issues.

FYI - Here is the link to the FEMA site where you can check if a house is in a SFHA: http://www.floodsmart.gov/floodsmart/pages/riskassesment/findpropertyform.jsp