OK, this is kind of a long story, but I know there are some good opinions and perspectives out there and I wonder what they are.

A guy I work with, early 50's, has lived in the same house for 27 years. He has a small brook running behind his yard, maybe 150 feet from his house. He recently got a letter from the bank that holds his mortgage saying that FEMA has reclassified the local 100 year flood zones and his house is now in the threatened area. They say he needs to buy flood insurance from FEMA and if he doesn't pay for it they will just tack the cost onto his mortgage. In the 27 years he has lived there, we have had some major storms and he has never had so much as a puddle in his basement. The previous system had his flood risk at "none". Now it jumped all the way to "high", not even "moderate". He checked the FEMA map and found that a corner of his attached garage is crossed by the flood plane line. No part of his house is in the flood plane. Naturally, he doesn't feel like he needs this insurance and doesn't want to pay for it.
The bank guesses the cost will be around $1,800 a year, but he can't just get a quote. To get a quote he needs to have a certified topography assessment to evaluate the height of his home above the projected 100 year flood zone. The assessment would cost about $2,000. So now they want him to pay $2,000 for the priveledge of buying something he doesn't want and will probably never need. After all, this is protecting the bank, not him. He only owes about $40K on the mortgage on a house worth maybe $250K.
So he tells the bank he won't pay for the assessment and that if they tack the insurance onto his mortgage, he won't pay his mortgage. My first reaction is that that may be a bad idea. Then I began to wonder, what's the worst that could happen? If he defaults, his credit rating goes to crap, but so what? He likely will never borrow any money again in his lifetime. He owns his cars and 80% of his house. His kids are through college. Aren't banks encouraged to negotiate better terms for delinquent homeowners? I wonder if this might actually allow him to negotiate a better rate and save some money?

So anyway, what's the worst that could happen? He feels the bank is being unreasonable for several reasons that I won't go into here. I think he's serious about defaulting. What do you think? Is that such a bad thing?

If Cubby is out there, I would value your opinion, but all are welcome, of course.

 

I'd suggest he retain legal counsel for advice.
If no topography assessment has been done how can the bank be making the judgment that they are?

 

By law, the bank doesn't need the certified assessment if they wanted to buy the FEMA insurance. They are allowed to use the town topography maps. Homeowners have to pay for a certified assessment.
This from FEMA and the bank.

 

I dont think defaulting on his mortgage payments would be a very smart move.

Other than that consult a lawyer.

 

Sounds like another money-making scheme to me.

It's simple, people should have the option to have the insurance and if they decline it
and something happens that's not covered, oh well.

 

I see this going to the lounge eventually. Fema is in on it.

 

Yea....but the bank has an interest in the property...once he owns it...this whole problem goes away.

 

i know a buddy of mine is going through the same thing in MN - he said he's able to dispute FEMA's assement

i'll call him tomorrow for more details

 

I've only ran into this rarely in my years of lending.....and it as been so long I only remember the phrase "elevation certificate"

But lets look at this constructively.......we are talking 40k right?

First.....he should ALWAYS pay his mortgage, not defualt....yea, I know he doesn't need credit, but things can change, his kids may have a financial crisis and it would suck if he wrecked his credit over this.

There are absolutely no advantages to defaulting.....period. Done. He won't come out ahead.

 

^ And as we become a more connected society your credit score will matter more and more. Insurance companies and many others already base there service rates to you after reviewing your credit score.

NEVER INTENTIONALLY MESS UP YOUR CREDIT EVER!