Massachusetts Gov. Deval Patrick on Wednesday signed into law legislation that prohibits creditors from requiring residential property owners to buy flood insurance in an amount that exceeds the balance of their mortgage or the value of a home equity line of credit. The new law also prohibits creditors from requiring flood insurance to cover the contents of the home, and bars policies from having a deductible of less than $5,000.
The bill, H. 3783, had passed the state Senate in June and the state House of Representatives in March and is now Chapter 177 of the Acts of 2014. The new law will take effect in 120 days.
The legislation states that in each instance where a creditor requires the residential property owner to buy flood insurance, the creditor would be required to provide notice that says the following in clear and conspicuous print:
“Please note that the flood insurance we are requiring you to purchase will only protect your creditor/lender’s interest in your property. It may not be sufficient to pay for many needed repairs after a flood and may not compensate you for your losses in the property due to the flood. If you wish to protect your home or investment, you may wish to purchase more flood insurance than the amount we are requiring you to buy.”
Massachusetts Attorney General Martha Coakley, who together with state House Speaker Robert DeLeo filed the bill last October, welcomed Gov. Patrick’s signing of legislation.
The Massachusetts attorney general’s office stated that tying the amount of required coverage to the outstanding mortgage balance, instead of a higher amount, will keep premiums lower for homeowners in the National Flood Insurance Program. Homeowners will still have the option of purchasing a greater amount of insurance.
“The proposed federal flood insurance changes were inherently unfair to thousands of Massachusetts families. This new law, combined with recent changes to the National Flood Insurance program, will offer greater protection to families who could face unsustainable rate increases through no fault of their own,” Coakley said in a statement.
“I extend my thanks to Speaker DeLeo for his leadership and partnership on this important bill, to members of the House and Senate for their support, and to the Governor for signing this into law,” Coakley said.