How the Flood Has Changed the Landscape

Buyers and sellers throughout Southern Alberta are dealing with a whole slate of new issues since the June 2013 floods. Likewise, though, so are the industry members that they’ve hired to assist them in buying or selling residential property.

Everyone has been told about the flood maps. Industry members, certainly in Calgary and other flood-affected parts of the province, likely know the difference between floodway and flood fringe. But, there are some things coming up that they may not have heard about.

Stories are circulating of buyers who have been pre-approved for a mortgage, but when they find a place they want to buy – and it has a “flood-prone” postal code – they’re denied financing. Or, even worse, after they’ve waived their financing condition and they’re ready to take possession of their new home, they find they can’t afford the quoted home insurance cost or they can’t even get home insurance.

On the other side of those transactions are the sellers who may or may not have been damaged by the floods, but have completed flood mitigation. Some lenders, though, are still denying potential buyers financing because they have a ‘blacklisted’ postal code. Lenders, especially those that aren’t based locally, are using the first three characters in a postal code to flag a file for further review. These lenders may not have a local underwriter, they may never come out and look at the property, they’re simply relying on half of the postal code. They end up denying financing for a property that wasn’t affected by the June floods and is unlikely to be affected by future floods. It’s upsetting for the potential buyer and for the sellers.

Some lenders are placing very broad conditions on their willingness to approve financing for properties in certain areas. And some lenders, in conversations with local mortgage brokers, have gone so far as to say certain areas are a no-go right now.

So what is a buyer or seller’s real estate representative to do? What about mortgage brokers?

To start with, for buyers – you should discuss the possibility of putting a condition in the offer to purchase about the buyer’s ability to obtain satisfactory home insurance. Also, remind buyers that a pre-approval for mortgage financing won’t remove their need to have a financing condition in any offer to purchase.

When working with sellers in areas associated with the flood, tell them to ensure they’ve documented any flood mitigation work they’ve done. Suggest they keep all receipts and invoices from contractors and have them make this information available to potential buyers. Recommend that they allow the buyer to take copies of this documentation if they’re approaching a lender for financing. Ask the seller to disclose who they have home insurance through so that a potential buyer can approach the insurance company for a quote.

If you’re a mortgage broker working with a buyer, try to submit additional resources with the mortgage application to prove the property is outside the floodway or flood fringe. This may include providing a print out of the Flood Hazard maps available through the Alberta Government, and physically pinpointing the subject property on the map.

The fallout from the June 2013 floods will be felt in Alberta’s real estate industry for years to come. It’s not an easy situation for anyone – it’s heartbreaking in many cases – but industry professionals can help buyers and sellers navigate what can be a very uncertain situation.