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Moore About Business: The FEMA 50% Rule

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As we all work our way through Hurricane Ian after-effects and recovery, the crux of determining Southwest Florida’s path through community and economic re-development might well be something referred to as FEMA’s “50% Rule.”

While the rule applies to both home and commercial structures, I will use a home example here. If 50% or more of the market value of your home was destroyed by Hurricane Ian, the 50% rule comes into play.

Kara Jursinski Murphy, partner at Kevin F. Jursinski & Associates, not only professionally specializes in navigating the nuances of “The 50% Rule,” but is also currently experiencing it firsthand on a personal level here in Southwest Florida.

Murphy explained the reason for “The 50% Rule.”

1:35 “You're more likely to suffer from a flood event as a national disaster in the United States or worldwide than you are any other type of natural disasters such as a fire. They say, on average, only 27% of households carried flood insurance. In Southwest Florida, it was somewhere between 18 and 25%.”

Murphy continued, "Unfortunately, because of that, it precipitates an issue where FEMA has to come in and take over any costs to rebuild or allow people to have funds available in order to proceed forward with the reconstruction. So they put specific guidelines on that when it's not only just flood insurance issues, but when it’s governmental funds being utilized to implement those changes.”

The point, she noted, is to govern and regulate non-conforming properties, which are properties that are not in compliance with flood requirements, like being below base flood elevation. As a governmental entity, she added, we are trying to phase out these non-conforming properties so there are less non-conforming properties over time as they are rebuilt, which also helps keep homeowner insurance costs more affordable in the long run.

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Therefore, Murphy noted, there are stringent requirements placed on local governmental entities to ensure policies are in place that don’t just simply allow people to continue to rebuild non-conformities. She explained how it works.

1:55? “So the 50% rule applies to make substantial improvement, but now more appropriately, substantial damage, and the basic rule is if the cost of improvement or the cost of repair of the damage exceeds 50% of the market value of the building, it must be brought up to current floodplain management standards.”

Murphy explained that the 50% rule applies neither to the value of the property upon which the structure is built, nor the contents of the structure. It is also not based on the current market value of the structure, it is based on the appraised value of the structure, pre-Ian. In Lee County you can go to a web page that the Lee County Property Appraiser recently created in response to Ian to see what the appraised value of your home is at leepa.org. Enter your property address, click on “Parcel Details”, and you will see the appraised value of the property pre-Ian, broken down to the structure and land values. The pre-Ian appraised value of the structure is what is used when applying the 50% rule. Then click on the “Tax Roll Value Letter” option. You may also hire an independent appraiser to determine structure value. Based on the appraised structure value, you are then eligible to receive funds for up to 50% of the structure value.

It is critical to understand that most Lee County municipalities at this time had additional 50% rule policies in place pre-Ian, Murphy pointed out. So let’s say you completed substantial permitted renovations in the past 5 years. While those renovations ADDED to the market value of the house, they are also more costly to replace. So for 50% FEMA rule application, the value of those renovations are therefore deducted from the 50% you are eligible to receive.

However, it is even more important to understand that, for example, the Lee County Board of County Commissioners may be looking at reducing or eliminating this caveat, and that municipalities, like Cape Coral Mayor Gunter recently stated, will look at what the County decides and then at the November 30 City Council meeting, decide if further action needs to be taken to help Cape Coral residents and business owners start to rebuild and get back on their feet. So keep up with your county and municipality definition of the 50% rule—many of them have it posted on their websites.