Flooding and CLUE reports

A buyer is thinking about purchasing a home in southern Wisconsin where there was extensive flooding. The buyer is worried that the seller is not disclosing information about past water damage to the property. Is there a way (other than asking the neighbors) to independently verify whether or not there has been past water damage? 

Although the seller should be completing the real estate condition report (RECR) accurately, another source of information is a Comprehensive Loss Underwriting Exchange (CLUE) report. CLUE reports contain information regarding previous insurance claims on property. A prospective purchaser wanting a CLUE report for a property should make it a condition of his or her offer that the seller obtain and provide such a report because real estate agents and prospective buyers cannot themselves order or obtain CLUE reports on a seller’s property.

Sellers may request a copy of their CLUE report online at www.choicetrust.com. For more information on CLUE reports and insurance issues, see Legal Update 03.04, “Addressing Transactional Property Insurance Issues in Wisconsin,” online at www.wra.org/lu0304.

Flooding

There is an accepted offer on a property that had sustained basement flood damage from the recent rainstorms. The seller was trying to say it was not much water, but the rain damage was more extensive than the seller indicated. Can the buyer cancel the agreement?

The parties should review the Property Damage Between Acceptance and Closing provisions on lines 115-123 of the WB-11 Residential Offer To Purchase. Depending on the extent of the damage and the cause, the seller may be required to repair the property and restore it to the same condition it was in on the day of the offer. If, however, the damages exceed 5 percent of the selling price, the buyer has the option to cancel the agreement.

The buyers may consult with appropriate experts to determine the cause of the water damage and whether the seller’s repairs are appropriate. As necessary, the parties should also be referred, in writing, to legal counsel. Any drafting to allocate costs or liability, provide for the assumption of risk, or create escrows should be done by or under the advice of private legal counsel representing the parties to the transaction.

Flood insurance

The buyer applied for financing and received a letter from their mortgage company stating that the property is in a hazardous flood area and that the buyer will have to get flood insurance. The seller did not have flood insurance and did not disclose that the property was in a floodplain. Who decides whether a property is in a floodplain and whether flood insurance is required?

The National Flood Insurance Program (NFIP), created in 1968 by Congress, has three main functions: floodplain identification and mapping, floodplain management and providing flood insurance. Flood insurance rate maps identify a property’s flood risk and many have been recently revised. Structures located in the floodplain or a Special Flood Hazard Area (high risk) have a significant chance (26 percent) of suffering flood damage during the term of a 30-year mortgage. If the home is in these high-risk areas, the mortgage lender is obliged by law to require that the borrower buy flood insurance as a condition for receiving a federally backed loan.

The Federal Emergency Management Agency’s Federal Insurance and Mitigation Administration Hazard Mapping Division maintains and updates the National Flood Insurance Program maps. FEMA has an online list of FAQs devoted to flood insurance questions at www.fema.gov/business/nfip/fiprobyr.shtm.

Homeowner’s policies do not cover property or possessions in case of flooding. Flood insurance available under the NFIP can cover loss for floods, flood-related erosion, severe rainstorms, flash floods and mudslides. More information about insurance and flood insurance coverage is available from the Wisconsin Office of the Commissioner of Insurance (oci.wi.gov/pressrel/0308flood.htm) and Consumer’s Guide to Homeowner’s Insurance (oci.wi.gov/pub_list/pi-015.htm). Additional links and information are available in the February 2007 Legal Update, “Water’s Edge: Floodplains & the Ordinary High Water Mark,” online at www.wra.org/LU0702, and on the WRA Floodplain Resource Page at www.wra.org/floodplains.

Hail damage

The seller replaced his roof approximately three years ago. Last year, following a hail storm, the seller contacted his insurance company to file a claim. He received a payment for the roof, but did not replace the roof. He pocketed the money instead. The seller wants to know whether the hail damage must be reported on the RECR and whether the receipt of insurance proceeds must be disclosed.

The seller should complete the RECR based on the seller’s own notice and knowledge of defects. Defects include conditions that would have a significant adverse effect on the value of the property or would significantly shorten or adversely affect the normal life of the premises. Given that the damage was significant enough to trigger an insurance claim and payout, the hail damage to the roof would presumably be disclosed in the RECR, especially since the hail damage has not been repaired. The seller would not, however, be required to disclose the dollar amount of the insurance proceeds. Any offer drafted on the property may then take into account the condition of the roof, including necessary inspections, repairs or roof replacement, or a purchase price reduction to reflect the roof damage. The broker may recommend the buyer obtain the professional opinion of a roofing contractor or other appropriate expert. 

Private well water contamination by flood waters 

The buyer is thinking about purchasing a home with a well. The property was recently flooded. Is a buyer required to have the water tested before purchasing a property with a private well?

Private wells can become contaminated by floodwaters resulting from heavy rains. Floodwater can contain contaminates or bacteria posing a threat to human safety. If the well system has been flooded, the property owner should have the well tested before using the water. Information about proper testing and chlorination procedures is available from the Department of Natural Resources at dnr.wi.gov/org/water/dwg/flood.htm. The WRA Addendum B may be used to negotiate the inspection and testing of the well water and the private well system.

Abandoned well rules modified 

The broker has heard that all abandoned wells must be closed at the time of transfer. Is this true?

The sale of property will often be the trigger requiring either well abandonment and closure or compliance with DNR rules. Regardless of a property transfer, an abandoned well must be properly closed by properly credentialed persons to maintain ground water quality. After June 1, 2008, only licensed well drillers and licensed pump installers will be allowed to conduct inspections for transactions and perform well abandonment work.

Typically, violations of Wis. Admin. Code chapter NR 812 requirements would be cited to the owner before the DNR would require an owner to fill and seal a well. Some water system feature violations can be corrected, but some are serious enough that the only recourse is to fill and seal the well.

If closure is required, the DNR will require the filing of a Well Filling and Sealing report. The reports may be found on a website provided for the tracking of well closures (dnr.wi.gov/org/water/dwg/wellaban.htm).

Tracy Rucka is a Staff Attorney for the WRA.