Both buyers and sellers need to keep abreast of tropical storm activity, and plan ahead to avoid insurance issues.
The Atlantic hurricane season begins June 1 and ends November 30, meaning it is in effect for 6 months out of every year! Thus, there’s a 50% chance that you could be closing on a sale or purchase during hurricane season. There is an important aspect to be aware of regarding named storms, because even if a storm doesn’t threaten our area, it can still impact real estate closings in a major way.
If you are planning on buying or selling a property, always stay current on the status of tropical activity. The reason is that insurance companies use a “hurricane box”, shown on the map above, as a guideline for writing homeowners and flood policies. The area of the box may vary slightly from company to company, but this one, which begins at 20 degrees N latitude and 80 degrees W longitude, is a good example. Once a named storm enters the box, insurance companies will no longer issue new policies, nor increase coverage on existing policies. This status is sometimes referred to as “non-bind”. When an insurance company officially commits to a policy, they “issue a binder” or are “bound” to that policy. Thus, when they are in non-bind status, no policies are bound, and no insurance can be obtained. They stay in non-bind status until the storm is no more, which can take days.
As a real estate closing draws near, one of the crucial steps required by the buyer’s lender is the binding of the homeowners insurance policy. Also, if flood insurance is mandated, it must be bound too. Usually insurance is bound in the late stages leading up toward closing, but therein lies the danger. Should the insurance not be bound, and a named storm enters the box, the closing would likely be delayed, possibly for a considerable time. That in turn could cause the contract date to pass by, the buyer’s rate lock to expire, and/or many other problems. All of these issues are serious, and can make the entire sale fall through. Therefore, closing delays must be avoided at all costs. (Keep in mind that the government-mandated changes to closing procedures effective October 3, 2015 are another potential cause of delay.)
To avoid problems due to named storms, both buyers and sellers MUST pay close attention to tropical activity. (Click here to reach an excellent website for monitoring the tropics.) If you’re a buyer and it seems even remotely possible that a named storm might enter the box around the time of closing, get the insurance bound IMMEDIATELY! If you are a seller, don’t rely on the buyer knowing about this and acting on it. Be proactive and have your agent contact theirs to make sure it is done. Otherwise, your sale could be in jeopardy.
By staying aware of potential storms, and taking care of the insurance binder(s) ahead of time, closings can proceed as planned, even if a named storm enters the box after the insurance is bound.
If you have any questions about how to handle this, give us a call or email!