US selling flood-prone homes to unsuspecting buyers: Investigation

The US government has been selling houses in federally-designated flood zones, mostly to unsuspecting first homeowners, without disclosing the potential costs and dangers of living in such properties, according to an investigation.

The homes, being sold by the Department of Housing and Urban Development (HUD), are foreclosures, meaning the previous owners were unable to pay their federally insured mortgages, and the houses were seized by banks and turned over to HUD, an investigation by NPR has found.

Between 2017 and 2020, the department sold nearly 100,000 homes around the country.

“We just kind of wanted to get our family started, and it was affordable for us,” said Larry McCanney, who purchased a house from HUD without knowing that it was located in a flood-prone area.

The only unexpected thing McCanney noticed about the house was that the seller was listed as the secretary of Housing and Urban Development.

“I’m still paying college loans off 11 years later, [and] we wanted to ensure that we were purchasing a place that, should I lose my job or if [my wife] lost her job, we wouldn’t be out of a house in two months’ time,” he told NPR.

There is a nationwide shortage of affordable homes, especially for low-income families. Providing safe, affordable housing is HUD’s mission, but the agency has been exposing low-income and vulnerable families to potentially catastrophic risks.

Ironically, some of the transactions have gone through even as concerned local governments have been busy buying out properties in vulnerable areas to mitigate flood risks.

NPR analyzed tens of thousands of homes sold over a nearly four-year period. The findings include:

Homes that were sold by HUD between January 2017 and August 2020 are in federally designated flood zones at almost 75 times the rate of all homes sold nationwide in that period.

Louisiana, Florida, and New Jersey stand out as hot spots. More than one-fifth of homes sold by HUD in Louisiana were in flood plains. In Florida, it was about 12% of homes sold by HUD, and in New Jersey, 7%. In comparison, Zillow’s records show that 0.1% or less of all homes sold in these states are in flood zones.

In many cases, buyers of HUD homes get less information about flood risk and the cost of flood insurance than if they were to purchase the house from a private seller.

Neighborhoods, where HUD sold homes, have lower median household income on average than areas where HUD did not sell homes.

People who purchased homes from HUD in multiple states told NPR that they did not learn their homes were prone to flooding until after they have made a nonrefundable deposit.

Most buyers find out their new house is located in federal flood zones when they are notified that they must purchase flood insurance, which is usually so late in the purchasing process that they find it almost impossible to back out.

“That’s the one disappointment in this area. We’re in a flood zone, so we have to pay pretty expensive flood insurance,” said McCanney, whose house’s basement was flooded this summer after a rainstorm. “I didn’t really take that into account when we first bought it.”

Housing experts say the pattern of HUD home sales in flood plains indicates that the agency does not fully appreciate the risks for buyers.

“It only bolsters the reality that a lot of homes that have provided shelter to low-income households are in areas of greater risk,” said Laurie Schoeman, the resilience director for the national housing nonprofit Enterprise Community Partners.

“These homes are in really vulnerable areas, and it puts households at risk,” she said.

HUD said the agency does not choose the homes it sells and one reason they are disproportionately located in flood zones is likely because the banks cannot sell these unmarketable properties.