- Created: Friday, 01 November 2013 19:13
What would you do if your house payment suddenly went up $500? What if it was through no fault of your own? That’s exactly what happened to one of our clients, Kurt Petersen. Because of an oversight by his mortgage company, his flood insurance premium was not paid on time. This would normally be an easy problem to remedy, but with the new Biggert-Waters Flood Insurance Reform Act now in effect, his premium will jump from $1,800 a year to over $8,000.
Sure, his premium would have increased anyway because his waterfront home in northeast St. Petersburg is in a flood zone, but only by 20 percent per year, up to the new higher non-subsidized rate.
Equally concerning about this oversight is that his home and its contents were not covered by flood insurance for most of the year. "My home was without flood insurance for 10 months, and it was supposed to be paid through the escrow," Petersen said.
Like many homeowners, Kurt Petersen’s property taxes and insurance premiums are paid through an escrow account managed by his mortgage company. These costs along with his mortgage principal and interest are bundled into his monthly mortgage payment.
The oversight seems to be a byproduct of refinancing his mortgage in 2012. An act that was intended to save money may end up costing Mr. Peterson much more. Peterson, a banker, calculates the difference between stair step increases and the immediate increase could add up to $50,000.
This is why Mr. Petersen has enlisted the services of LeavenLaw. Attorney Ian Leavengood states, "Review of Mr. Petersen's re-finance closing documents clearly demonstrates not only that flood insurance escrow was contemplated by Mr. Petersen's lender, Wells Fargo, but that Wells Fargo even charged Mr. Petersen on the closing statement for a company to monitor and verify that Mr. Petersen continually had flood insurance. Both Mr. Petersen's lender and Life of Loan Flood Policy Company completely failed Mr. Petersen, and as a result, he has been irreparably damaged."
Leavengood adds, "There's no negligence on the part of Mr. Petersen. He has made his payments in a timely manner and performed exactly how he was supposed to perform, and now he's at least potentially facing monetary damage."
Leavengood is hopeful that either the National Flood Insurance Program will agree Petersen did not intentionally allow his policy to lapse, or the escrow agent will absorb the costly error.
In either case, "Consumers just need to be very diligent," Leavengood advised. "They need to try to understand what this law means. You can't afford to let your flood policy lapse."
This case also illustrates how the flood insurance reforms impact local economies. The money to pay the higher premium will have to come from somewhere. "It means I'm not buying a new car," Petersen said. "I have a 1996 and a 2000, and one of them's gotta go soon."