ST. PETERSBURG — J. Kurt Petersen has fallen prey to another disturbing twist in the flood insurance saga.
Wells Fargo didn't pay Petersen's flood premium out of escrow when it was due, forcing him to take out a new flood policy. The lapse means annual flood premiums for his Shore Acres home will quadruple in January from a little over $2,000 to $8,000.
"I would guess that Wells Fargo is liable for this," said Petersen, 47, who has hired an attorney to investigate.
He can blame his troubles on a provision within the Biggert-Waters Act, the controversial 2012 law that triggered a makeover of the National Flood Insurance Program. Under the new rules, homeowners paying lower, subsidized rates on older homes in flood zones lose those subsidies entirely if their policy lapses.
Biggert-Waters has already pummelled buyers of houses in flood-prone areas with sharply higher insurance rates. It has angered small business owners whose flood-zone properties face 25 percent annual increases. It has put a chill on home sales.
As Petersen's case shows, it can wreak havoc even when you think you've played by the rules.
His trouble began in February, 2012, when he decided to refinance his mortgage through his primary lender, Wells Fargo. As part of the refinance, he paid off a home equity line with another lender and — as in the past — continued to have flood insurance, hazard insurance and real estate taxes all paid through an escrow account with Wells Fargo.
In November, after applying for a new home equity line of credit with Wells Fargo, Petersen discovered the bank did not have proof of flood insurance on his home. After contacting his State Farm agent, he learned that not only did the National Flood Insurance Program not have proof of payment, its records showed his policy had lapsed in April, three months after the refinancing.
"Wells Fargo used an outside service to monitor nonpayment of flood and hazard," he said. "They didn't catch (that the premium hadn't been paid) soon enough. I was never notified. I didn't receive any notification from Wells Fargo or from NFIP that my policy had lapsed or was at risk of lapsing for nonpayment."
To make matters worse, Wells Fargo's own online system indicated the flood premium had been paid through April 2014, Petersen said.
Wells Fargo spokeswoman Michelle Palomino said she could not address specifics with Petersen's situation nor provide details about how often an escrow payment is missed. "Our goal is to remit payment promptly to all insurance providers when there is an insurance escrow account associated with a loan to ensure our customers maintain continuous coverage on their property," she said.
Initially, Petersen considered the mistake more of an inconvenience than a burden. He took out a new flood policy and his premium rose only a couple of hundred dollars to $2,165.
"I never thought it would haunt me," he said, only discovering recently about the Biggert-Waters changes. He obtained a flood elevation certificate, and received a quote estimate of $8,000 for insurance upon his next renewal.
Petersen wonders how many others with missed escrow payments are in the same boat. "This is not the first time, I'm sure, that this has happened."
It's not that rare for a bank to be tardy in paying a property tax bill out of escrow — and subsequently covering any minimal fee. But the financial impact is greatly magnified when it triggers the lapse of a flood policy.
Jake Holehouse, vice president of Ronald F. Holehouse Insurance and Risk Management in St. Petersburg, said he has heard of a few cases where insurance payments weren't paid properly out of escrow and policies lapsed after 30 days. There are two options when that happens: The property owners arrange for new coverage or the bank "force-places" coverage.
Either way, "if the escrow fails to make the payment, the homeowner gets penalized," Holehouse said. "We don't know of any penalties in place for the banks."
Petersen isn't sure that he wants to pursue a legal challenge. The best case scenario, he says is "that this legislation goes away."
Biggert-Waters sought to make the flood program solvent for the long haul by eliminating subsidies — either now or gradually — on properties that have paid lower rates dating before flood maps were adopted. About 20 percent of the 5.5 million flood policies nationally are subsidized, with Florida affected more than any other state.
Pinellas County has more than 50,000 subsidized properties facing potentially large rate increases, more than any other county in the nation.
Florida's congressional delegation is largely unified in pushing to stop or delay the harshest of the rate hikes. Even if it succeeds, any fix may have to be retroactive as some property owners have already begun paying the higher rates.
Jeff Harrington can be reached at firstname.lastname@example.org or (727) 893-8242.