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.
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.
While there is no longer a “box” to watch out for, 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. “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, provides that if a closing is delayed because of Force Majeure (hurricanes, earthquakes, floods, fire, acts of God, unusual transportation delays, or wars, insurrections, or acts terrorism, etc.), 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 the contract. The contract also provides that “if such Force Majeure continues to prevent performance” under the contract more than 30 days beyond the closing date, then either party may terminate the contract. Unfortunately, many real estate agents are not aware that these time frames have changed and often don’t advise their buyers or sellers of the changes. Until recently, the contract provided 14 days instead of the current 7 days, and allowed the buyer or seller to terminate the contract if the Force Majeure prevented closing beyond 14-days, whereas it is now 30 days.
Although in many cases the buyer and seller are protected in the contract, this clause does not change the fact that delaying a closing can cause hardship and issues for some buyers and sellers, even under the best of circumstances. To prevent these 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!
Bobby Poth leads the Bobby Poth Real Estate Team at Global LifeStyle, LLC in St. Petersburg, FL. Bobby is a Broker Associate at Global LifeStyle, LLC and has been licensed since 2004.
Zane Lefko is a Licensed Insurance Broker with The Lefko Group at John Galt Insurance Agency and has worked with several of the BP Real Estate Team’s clients.