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Erik Burgess, Published October 21 2013

Cass homeowners refusing buyout could see flood insurance premiums increase by thousands of dollars

FARGO – Homeowners in the floodplain could see their flood insurance premiums skyrocket much quicker if they refuse a federally funded buyout.

Cass County leaders are in the middle of offering buyouts to about 50 rural county homes still in the floodplain, buyouts funded by a Federal Emergency Management Agency hazard mitigation grant awarded earlier this year. Many of those homes have been on the county’s buyout wish list since 2009.

Sixteen homeowners have accepted a buyout so far in this latest round, with two more expected to close this week, said Courtney Taylor, of Lake Agassiz Regional Council, which is handling buyouts for the county.

But homeowners on the county’s buyout list who do not accept a FEMA-backed offer may immediately lose a federal flood insurance subsidy that is meant to be slowly reduced for most policyholders. That could mean an increase of thousands of dollars per year, county officials said.

“We hope that word gets out to folks,” Cass County Administrator Keith Berndt said Monday. “Because, I guess, if I were a property owner on the fence down there, that would certainly sway my thinking.”

Hike could hit next fall

Three homeowners have declined the offers so far.

Cass County Engineer Jason Benson said he believes homeowners are being made aware of the possible impacts to their flood insurance if they decline a buyout.

Homeowner Brian Bjorkman, who recently declined a buyout offer from the county, disagreed.

“I know they didn’t talk to me about it, or at least didn’t point it out,” said Bjorkman, though the rate hike wouldn’t affect him because his house on Northwood Drive isn’t in the floodplain.

Another homeowner, Michael Ibach, said he can’t recall if the county told him that declining a buyout could affect his insurance premiums. He declined the offer because it was unfair, he said.

“What they offered us wasn’t even close to what we wanted,” Ibach said. “We would’ve taken a big-time loss.”

Efforts to contact a third homeowner who has declined a buyout offer were unsuccessful on Monday.

Homeowners on the list who have declined an offer can still get a buyout, Berndt said. The final paperwork won’t be complete for at least a year.

Ibach said he’s hoping the county will come back with a better offer.

Once Cass County has closed on every house that it is able to purchase on its latest list, the grant paperwork will be finalized and that’s likely when FEMA will bump up the rates to those who have declined a buyout, Berndt said.

“FEMA probably won’t be aware of it until we actually close out the grant,” he said, which could happen as soon as next fall.

Homeowners who are not one of the 50 homes on the approved FEMA application cannot be added now that the grant has been awarded, Berndt said.

Another round of hazard mitigation grant funding is possible in about a year’s time or longer, but that amount will be “pretty small,” Berndt said.

Reform kills subsidies

The rate hike linked to declining a FEMA buyout was included in the Biggert-Waters Flood Insurance Reform Act of 2012, which aims to make the National Flood Insurance Program solvent by increasing flood insurance premiums to actuarial rates. That means the less risk you have, the less you pay. The more risk, the more you pay.

The new rates are supposed to be phased in by increases as high as 20 percent each year, but certain events trigger the actuarial rates automatically, which could be thousands of dollars more per year than the subsidized rates. One of those triggers is if a homeowner refuses a federally funded buyout.

Other triggers include if an owner lapses on a flood insurance payment, has severe or repetitive damage or buys a new policy. If a home is sold, the new homeowners also pick up the new actuarial rate.

With subsidies being removed from the national flood insurance program, it’s likely that the county’s basement exception will also go away, Berndt said.

Cass County, Fargo and about 50 other communities nationwide – including 14 in North Dakota – have a basement exception.

Because of the exception, local homeowners in the 100-year floodplain with basement floors below the base flood elevation of 38.5 feet pay thousands of dollars less in flood insurance premiums than they would without the exception in exchange for “flood-proofing” their basements.

Berndt said that’s why he’s concerned about the rural homeowners who decline a buyout.

“Since these are all homes in the floodplain, all the grandfathering would go away, so they would use the bottom of the basement as the risk level,” Berndt said. “So presumably those flood insurance rates are going to go extremely high for those homes.”

Benson said “it could be from hundreds of dollars to thousands of dollars” difference in premiums.

Fargo officials are also concerned about the fate of the basement exception, and have said that low, subsidized premiums of about $400 a year could jump to as much as $10,000 or $12,000.

FEMA officials visited the city in August and said they were not certain if the basement exception would be eliminated.

“There’s a lot of unanswered things that I think FEMA is working through,” Benson said.

Readers can reach Forum reporter

Erik Burgess at (701) 241-5518