Can a Hurricane affect my closing?
The answer is YES, and it likely will!
Just imagine this scenario. You and your Realtor found the perfect home. You are scheduled to close on Friday just in time to unpack a few boxes and start your new job on Monday. You received quotes from three insurance companies for homeowners insurance, and decided on one. However, you decided to wait until two days before closing to finalize and bind the policy (and pay for it). The Sunday before closing, a storm develops and looks like it may approach Florida at some point within the next week. Your insurance company decides to stop binding policies, which means you won’t be able to get insurance the day you close on your new home. Since the home will not be insured, your mortgage lender says they will not fund your loan until you obtain insurance. You are now stuck finding a hotel to stay in so that you can start your new job on Monday. To compound the situation, your insurance company informs you that they will not begin issuing new policies until several days after the storm has passed. Once your insurance company lifts their moratorium on issuing policies, they inform you that your new home must be re-inspected before they will issue the policy. Further compounding the complications, your mortgage lender also informs you that the home must be reappraised before they will close the loan. What will you do?
This is a likely scenario during Hurricane Season in Florida, and many inexperienced real estate agents don’t advise buyers and sellers about this possibility, and how to avoid it.
If you are a buyer or seller who is working with an experienced, knowledgeable Realtor in Florida, you may have heard them mention something called “The Box.” For years, insurance companies have suspended binding coverage once a named storm enters “The Box”, which is a geographic region surrounding the State. Between June 1st and November 30th, Florida enters our Hurricane Season. If a named Tropical Storm or Hurricane entered a zone referred to as “The Box”, homeowners insurance companies would suspend binding coverage.
It is still surprising to many people that most insurance companies stop binding policies in the event that a named storm is threatening Florida, specifically if a Tropical Storm, Hurricane Watch or Warning has been issued by the National Weather Service for any part of our state. While a few insurance companies, like Tower Hill, still have their version of the “box” to watch out for, many have evolved their procedures and stop issuing new policies or making changes to existing policies once a storm watch or warning is issued for a specific coast, or in some cases, a specific county. “It’s always a good idea to talk to the agent you’re working with when storms approach”, says Insurance Broker Zane Lefko with John Galt Insurance Agency, “Once we have a hurricane watch, most insurance companies will begin suspending binding authority on new policies.”
If the buyer of a home is purchasing the home with a mortgage or other financing, the lender most likely will require that the buyer obtain homeowners insurance on the home. Many buyers wait to “bind” their insurance policies either the day before or the day of closing. If the insurance company will not bind the policy because of a named storm, the closing most likely will not happen. Fortunately, most contracts provide a clause for this situation called Force Majeure.
Force Majeure is unforeseeable circumstances that prevent someone from fulfilling a contract. Since the named storm is an act of nature, and not the fault of either the buyer or the seller, the Force Majeure clause in the contract typically goes into effect. The FAR/BAR As Is Residential Contract for Sale and Purchase, a contract often used by real estate professionals in Florida, defines Force Majeure as "hurricanes, floods, extreme weather, earthquakes, fire, or other acts of God, unusual transportation delays, or wars, insurrections, or actions of terrorism" and provides that "All time periods, including Closing Date, will be extended a reasonable time up to 7 days after the Force Majeure no longer prevents performance under this Contract, provided, however, if such Force Majeure continues to prevent performance under this Contract more than 30 days beyond Closing Date, then either party may terminate this Contract..."
This means that during an active hurricane season, it IS still possible for a buyer to lose their perfect home or for a seller to lose the sale of their home because a buyer didn't bind their insurance soon enough. Of course, if this worse case scenario didn't happen, simply delaying a closing can cause hardship and issues for some buyers and sellers, even under the best of circumstances.
The National Oceanic and Atmospheric Administration (NOAA) is predicting a likely range of 13 to 19 named storms during the 2020 Hurricane Season, of which 6 to 10 could become hurricanes. The first named storm of the season, Arthur, already occurred earlier in May before the official start of Hurricane Season.
To prevent these closing issues, a good Realtor will advise a buyer to lock in their insurance and obtain an insurance binder as soon as possible, and BEFORE the closing date. Once a closing date is scheduled, buyers should contact their insurance agent and purchase a policy as early as possible during Florida’s Hurricane Season. Don’t delay! Bind right away!
Zane Lefko is a Licensed Insurance Broker with The Lefko Group at John Galt Insurance Agency and has worked with several of the Bobby Poth Homes Team clients and customers.