Editor’s Note: The following story by Jeffrey Rembert was posted by ESTATIVIZE on its website under Agents on August 27, 2015.
With Tropical Storm Erika on a projected path toward the Southeast United States, prospective property owners– residential and commercial– should note a moratorium will exist on the binding or increasing of insurance coverage if the named storm crosses a specific geographic boundary, or enters a boundary box, somewhere off the northern coast of the Dominican Republic. Another way of putting it, without bound insurance or with inadequate coverage, closings may be delayed, interest rates may be at risk and, in the case of a post-storm claim, insurance proceeds may fall short.
Why is a moratorium important to understand?
As a named storm enters the boundary box, as established by insurance carriers, the National Hurricane Center offers a calculated projection of its path. The margin of error can account for several hundred miles. But, as we know, insurance carriers and lenders are averse to risk. If a named storm is anywhere near – defined by entering the boundary box – owners can forget about binding coverage or increasing coverage over the short term even if the named storm is hundreds of miles away and unlikely to affect their property.
When is the moratorium lifted? When can I close?
It’s up the insurance carrier but typically, even if a named storm remains in the boundary box, if models of projected path indicate the storm is moving away from an owner’s property, the carrier can lift the moratorium and resume binding and increasing coverage. But as many recall in 2004 when three hurricanes (Charley, Frances and Jeanne) swept through Florida over a 45-day period, timing is everything. Don’t hesitate to bind or increase coverage once a moratorium is lifted. The window of opportunity can close quickly.
What is the difference between a disturbance, depression, storm and hurricane?
A tropical disturbance is when thunderstorms organize as one storm for at least 24 hours, lifting water vapor from warm waters into the clouds and thus strengthening. The disturbance is upgraded to a tropical depression when the winds form a closed circulation and maintain sustained winds of less than 38 miles per hour. A tropical storm exists when winds increase up to 73 miles per hour. A category 1 hurricane exists when winds reach 74 miles per hour. A major hurricane, or a category 3, exists when sustained winds reach 111 miles per hour.
What if my property is in a state that doesn’t border the Gulf of Mexico?
Each state has a specific boundary box, so it’s best to check with an insurance agent to determine if and when potential coverage is at risk. For Florida properties, the most common and approximate entry points are the eastern edge of the boundary box at west of longitude 70 degrees (north-south grid) and the southern edge of the box at north of latitude 20 degrees (east-west grid). The box includes portions of the Atlantic Ocean, Caribbean Sea and Gulf of Mexico. States along the Eastern seaboard (other than Florida) have separate and overlapping boundary boxes extending into the Atlantic.
How do I know how much time I have?
For those whose primary concerns are mortgages, moving expenses, rental payments and building maintenance, simply know the current location of the named storm, its direction and speed. Then do the math. If a storm is 600 miles southeast of the Dominican Republic and moving northwest at 15 miles per hour, give or take an increase in speed due to warmer waters or decrease in speed due to landfall along the Virgin Islands, the moratorium could begin in 40 to 45 hours. Since carriers prefer to minimize potential claims expect the moratorium to begin earlier than later.
Thinking about buying property next year?
Hurricane season along the Atlantic coast (and Gulf of Mexico) begins June 1 and runs through November 30. If a property owner is thinking about purchasing a property – residential or commercial – and timing is an issue, they might want to keep as close a watch on tropical storm forecasts as they do interest rates. If they’re looking at a variable interest rate or a 1031 tax exchange, a week-long delay in closing due to a name storm can have monetary implications. Owners, and real estate brokers, should bring an insurance agent into the discussion early.
http://estativize.com/featured-articles/act-now-hurricanes-tropical-storms-affect-on-real-estate