Get Out of the Zone

by Nick Bertino and Matt Herskowitz

TThere are many things that might keep a manufactured home community owner up at night, and experiencing a flood certainly is one of them. The increased frequency and severity of flooding in the United States has been making headlines in recent years, catching the attention of real estate lenders, insurance companies, and politicians.

According to a 2020 National Flood Risk Assessment Report published by the nonprofit First Street Foundation, 10.3% of all properties in the United States are located in a high-risk flood zone. A high-risk flood zone designation might not only impact a property’s required insurance coverage and related premium cost, but may also diminish the property’s value »

and access to financing. For the MHC owner whose property is located in a high risk flood zone as defined by the Federal Emergency Management Agency, there may be steps you can take to change your property’s flood zone designation.

Flood zones are geographic areas that FEMA classifies according to varying levels of flood risk. Any property located in an “A” or “V” zone, often referred to as a 100-year flood zone, is defined by FEMA as being a “high-risk” area. Many real estate and chattel lenders are re-evaluating flood zones related to the existing loans they are servicing to ensure compliance with federal guidelines, which require lenders to obtain a flood zone determination. When properties are determined to be located in a Special Flood Hazard Area, the high-risk zones defined above, the Flood Disaster Protection Act mandates financial institutions to require flood insurance when loans are secured by those properties. This flood insurance usually is available through the National Flood Insurance Program and applies to any permanent structures within manufactured housing communities, including sheds and other accessory buildings. These provisions also typically apply to residents if they are financing their homes with an external lender.

In August 2021, FEMA completed flood maps for approximately 80% of the U.S. While FEMA aims to use the most accurate flood hazard information available when developing flood maps, there are instances in which a property, or portion thereof, may be

incorrectly shown as lying within a high-risk flood zone. This can be due to limitations of detail within the source maps utilized. One of the resources FEMA uses to map elevations and topography is satellites equipped with Light Detection and Ranging technology. This technology is not perfect, and may inaccurately reflect the exact elevation or topography of a property. FEMA refers to such cases as “inadvertent inclusions”. FEMA continues to map flood zones, as well as make continuous updates to existing maps to reflect changes in water flow and topography.

Because errors and changes occur, FEMA has established administrative procedures to change the flood zone designation for properties that may be inadvertent inclusions. An official change would be addressed through the issuance of a Letter of Map Change. There are two primary types of flood map changes that can be made: a Letter of Map Revision and a Letter of Map Amendment. A LOMA is often used for a single property while a LOMR typically covers a larger geographic area such as changes impacting the entire subdivision.

In order for FEMA to issue a LOMR or LOMA, an owner must submit mapping and survey information as a way to provide evidence as to why the property should be removed from the high-risk flood zone.

As a starting point, a property owner should contact a licensed land surveyor or registered professional engineer to obtain an initial professional opinion as to whether the property is a good candidate for a LOMA or LOMR. If the property is deemed to be a good candidate, the

property owner would then engage the surveyor or engineer to prepare an “elevation certificate” for the property, and complete a formal application package for submission to FEMA. With respect to MHCs, we recommend that the property owner work with a surveyor or engineer who has experience with the property type. If multiple homesites are shown as lying within a high-risk flood zone, for instance, ground level elevations will need to be determined for each of those sites, not just for physical structures such as a clubhouse.

Upon receiving a complete application, FEMA normally will complete its review and issue its determination within four to six weeks. If FEMA approves the application, they will issue the LOMA or LOMR that will evidence the property is removed from the flood zone.

If, after exploring all available options, it is still determined that improvements or homesites at a property are located in a high-risk flood zone, the property owner can overcome the challenge from a financing perspective. Many MHC lenders will, at a minimum, remove any flood zone sites and their rental income from the underwriting of the property’s overall cash flow. A lower underwriteable cash flow will typically result in a lower loan amount and/or higher interest rate. However, if it can be evidenced through documentation (ideally, elevation certificates) provided by a surveyor that the floors of any manufactured homes located on the flood zone sites are elevated above Because errors and changes occur, FEMA has established administrative procedures to change the flood zone designation for properties that may be inadvertent inclusions.

the Base Flood Elevation (BFE) of the flood zone, MHC lenders will often allow those flood zone sites and their rental income to be included underwriting. Furthermore, home elevation certificates are helpful to the individual residents if they have loans on their homes because chattel lenders may otherwise enforce the requirement for these residents to obtain flood insurance for their homes.

As previously stated, a high risk flood zone designation often will have an adverse effect on a property’s value, as well as options for financing. The good (and bad) news is that FEMA flood maps may contain inadvertent inclusions, so all is not lost if your property is currently shown in a flood hazard area. By working with a qualified and experienced surveyor or engineer, a property owner may be able to change the designation. Even if you are not financing or selling your community at the moment, it is a good idea to be proactive in pursue all options to move your property “out of the zone.” MHV

Nick Bertino and

Matt Herskowitz are loan originators at Wells Fargo

Multifamily Capital, specializing in providing financing for manufactured home communities through their direct Fannie Mae and

Freddie Mac lending programs and correspondent lending relationships.

If you would like to receive future newsletters from them, or a copy of their Manufactured Home Community Financing Handbook, call (760) 438.2153 or email matthew. herskowitz@wellsfargo.com or nick. bertino@wellsfargo.com.

Matt Herskowitz is a Vice President at Wells Fargo Multifamily Capital, based in San Diego, California. Matt specializes in Conventional Multifamily and Manufactured Home Community financing through Fannie Mae and Freddie Mac programs. Matt originates loans nationally and supports the underwriting process from quote to close. Matt lives in Carlsbad, CA, and enjoys surfing, fishing, and diving.