- The Washington Times - Wednesday, January 21, 2004

Isabel was still a Category 5 hurricane with 155-plus-mph winds churning up the waves off North Carolina last September when it took its first toll on the Washington area. The area’s real estate industry took a direct hit when insurance companies stopped issuing homeowners policies days before Hurricane Isabel reached the nation’s capital.

Trish Sego, chairwoman of the Northern Virginia Association of Realtors’ Board of Directors, says it was a first as far as she knows. The action by insurance companies brought real estate settlements to an abrupt halt because scheduled real estate sales could not be completed without the coverage needed by prospective homeowners.

Although by the time it reached the area, it was reduced to a Category 2 hurricane, the storm devastated the capital region. It also left in its wake an unsettled real estate market.

Although she says she is unaware personally of any real estate sales that didn’t eventually reach settlement in Northern Virginia, Ms. Sego says the insurance disruption left significant delays and problems to address.

She says that although insurance companies eventually lifted the block on homeowners policies, power outages disrupted real estate appraisals and final walk-through inspections.

The cumulative effect: Many buyers faced delays that led to expiration of interest-rate lock-ins.

Ms. Sego says the current stability of interest rates provided an important safeguard for many buyers.

Meanwhile, in Maryland, waterfront properties were particularly problematic in the wake of the hurricane, according to Glen Burnie Realtor JoAnne Poole.

She says there were “huge” delays in the issuance of homeowners insurance with buyers of waterfront properties waiting two to three weeks for policies to be issued.

This was most evident in areas of Anne Arundel County. Ms. Poole says many real estate contracts in her area had to be extended or delayed as a result of the storm.

In addition, she says some buyers walked away from contracts, concerned over property damage, skeptical of promised repairs and worried about the impact on property values.

In the event of natural disasters such as Hurricane Isabel, the “risk of loss” generally remains with the seller, says attorney Steve Gregory, the Virginia and West Virginia counsel for Stewart Title Insurance Co.

Mr. Gregory says the principle is firmly rooted in contract law: The failure or inability of the seller to deliver on the “performance” of a contract relieves the buyer of his obligations in real estate transactions.

The language governing the seller’s performance is found in standard real estate sales contracts, along with several other contingencies outlining the rights and responsibilities of the parties involved.

For example, the contract might turn on financial contingencies. The buyer could make the purchase contingent upon the sale of his current home, or there could be a provision that includes a specific interest rate the buyer will receive from a lender.

The inability of the buyer’s creditor to sell a storm-damaged home or the loss of a lock-in rate due to a delay in the real estate settlement could hamper the agreement, as well.

Real estate sales contracts usually include a number of other legal caveats, including inspection. Before final settlement, the buyer may choose to inspect the property or hire a professional. There is usually a final walk-through before settlement to make sure everything is in order. The buyer can even require the seller to address certain identified problems.

However, there is clearly a significant difference between a leaky faucet in need of a washer or a smoke detector in need of a battery and a hole in the roof or structural damage caused by the neighbor’s hurricane-tossed 50-year-old oak tree.

It all comes down to the contract, Mr. Gregory says.

Some sales contracts have pre-occupancy clauses or are installment-sale contracts that allow potential buyers to live in the home or to make payments on the property prior to the final transfer of the deed and ownership.

Mr. Gregory says that in these instances, the contract will likely include provisions to address potential problems and responsibilities in case of damage or destruction.

In the wake of Hurricane Isabel, many area homeowners have become intimately familiar with contract law.

They have learned about the fine print of the homeowners insurance policy they had safely tucked away but never actually read.

“Families will have to dig deeper into their pockets because insurers have been steadily increasing hurricane-coverage deductibles,” says Consumer Federation of America Insurance Director J. Robert Hunter.

The CFA provided tips for homeowners on its Web site (www.consumerfed.org) Sept. 18, just after the hurricane hit shore.

Among the tips: Complain to insurance company “higher-ups” or state insurance agencies if you do not receive the settlement you believe you deserve.

The Insurance Information Institute (www.iii.org) recommends that home buyers “think insurance” when buying a home, including reviewing the “insurance loss history of the home you want to buy,” shopping for the best coverage, buying home and auto policies from the same insurer for a premium discount, and maintaining a good credit rating.

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