Substantial Damage Determinations in Floodplains

What is a substantially damaged structure?

A building is considered to be substantially damaged when the total cost of repair equals or exceeds 50% of the pre damage market value of the structure. This includes an estimated fair market value for all donated labor and materials and the cost of any repairs that are deferred to a future date. Land value is excluded from this determination. The local permitting official is responsible for making sure that all permits issued in a community comply with minimum state and National Flood Insurance Program(NFIP) standards. A building permit is required from the local floodplain zoning authority to rebuild a substantially damaged structure. However, the permitting official may require the owner/applicant to supply necessary information to make a substantial damage determination. Generally a city would enforce floodplain zoning controls for an incorporated area, and the county would enforce floodplain zoning for all unincorporated areas of the county.

What is the significance of communities making substantial damage determinations?

Communities are responsible for making substantial damage determinations and enforcing their floodplain ordinance: failure to do so could lead to probation or suspension from the NFIP. Probation is usually the first step towards suspension and gives a community time to bring violations into compliance with the community's floodplain ordinance. During probation there is a $50 surcharge on each flood insurance policy in the community. If the community ignores the conditions spelled out in its probationary period, that community may be suspended from the NFIP. This means that no renewals of flood insurance policies can take place. Likewise, no new policies can be issued. Property owned in the 100-year floodplain in suspended communities cannot receive federal disaster aid in the event of a presidential disaster declaration, nor would federally financed or insured loans be available. A "non compliant" community may not be eligible for state/federal post disaster mitigation/buy out programs.

What is the significance of NFIP suspension?

Residents of a suspended community are unable to renew insurance policies, purchase a new policy, or qualify for many forms of disaster aid that may be made available after a presidential disaster declaration.

How does a community go about making a substantial damage determination?

Immediately after a flood, local officials should tour the floodplain and note damaged areas on a community map. Map notations can identify areas where either: 1) damages appear minimal (e.g., shallow flooding of short duration, no visible signs of major structural failure) and substantial damage is not likely; 2) major damage/substantial damage is likely (e.g., deep flooding of long duration and/or evidence of major structural failure); or 3) borderline areas where substantial damage may or may not have occurred. As the cost of repair approaches the 50% threshold, the more exacting the substantial damage determination method must be. This may require a room-by-room, component-by-component cost of repair estimate by a qualified community official or a licensed building contractor. The community has the authority to require the building owner to provide a substantial damage determination from a licensed building contractor at no cost to the community.

What does substantial damage mean from the property owner's point of view?

If a property owner's insured structure is found to be substantially damaged, the structure must be elevated above the base flood elevation (or flood-proofed if non-residential) and be brought into compliance with the community's floodplain ordinance. Failure to do this could significantly increase flood insurance premiums for this structure. Facing the additional costs of elevating, flood proofing or relocating a substantially damaged structure, the owner may voluntarily request to be bought out by a community sponsored acquisition program primarily funded by state and federal agencies.

What if a land owner violates a permit, or the community fails to issue one?

If a structure is substantially damaged it will be actuarially rated by FEMA based on its risk of flooding. The flood insurance premium is then established based on the elevation of the structure's lowest floor in relation to the base flood (100-year) elevation (BFE). These rates are substantially higher than the pre-FIRM subsidized rates the property owner was paying before substantial damage occurred.

Can the community make a substantial damage determination itself or have the property owner provide supporting data?

Community officials may perform site inspections, determine pre-damage market value, calculate cost of repair, etc. Even if the land owner provides information, the local government is still responsible for reviewing and making sure the estimates are reasonable.

What categories of damage to a property can be excluded in cost of repair estimates when making a substantial damage determination?

The costs of plans, specifications, surveys and building permits, and other items which are separate or incidental to the repair of the damaged building may be excluded from the cost of repair. Debris removal, clean-up costs (e.g., dewatering basements, silt removal and disinfection, etc) and hauling damaged structural elements off site are examples of actions also excluded from this estimate.

Are there advantages from a buy out perspective to be substantially damaged in the 100-year floodplain?

Yes. Structures that are substantially damaged in the 100-year floodplain have been given top priority in the past when considering what structures to buy. In some instances, the benefit/cost analysis is waived by agencies that administer hazard mitigation/grant programs.

What if a structure is in the 100-year floodplain and not substantially damaged?

If a structure is not substantially damaged by a flood, repairs can be made without having to bring the structure into compliance with the community's floodplain ordinance. Such structures may still be eligible for a buy out as part of an overall mitigation effort and will be subject to a benefit/cost analysis. This would be especially so for structures that receive frequent but only moderate flood damage (commonly referred to as "repetitively damaged" structures).

What about structures outside the 100-year floodplain?

Structures outside the 100-year floodplain are a low priority when planning a mitigation strategy for a community. Such structures are reviewed by benefit/cost analysis and are generally declined for buy out by state and federal agencies due to insufficient funds.