Arthur Dropped 29 Inches: Require Flood Insurance in Private Deals
Inland flooding from Tropical Storm Arthur shows why private real estate sellers must require buyers to maintain active flood insurance.
A title company gets a file where a private seller financing agreement is ready to close on an inland property, and the paperwork completely omits any requirement for flood coverage. The buyer assumes it is not needed because they are far from the coast, and the seller simply forgets to ask for it. This oversight exposes both parties to an enormous unmitigated physical risk. Sellers engaged in seller financing should mandate flood insurance in their private contracts exactly as an institutional lender would.
The reality of Louisiana weather is that extreme water events happen far from the immediate coast. On June 18, 2026, the remnants of Tropical Storm Arthur dropped a preliminary record 29.06 inches of rain in under twelve hours near Cottonport in Avoyelles Parish. That inland deluge shattered a state twenty-four-hour rainfall record that had stood since 1962. Despite this statewide exposure, federal data shows that 1.2 million Louisiana properties currently lack a National Flood Insurance Program policy.
Protecting the Collateral in Private Deals
Traditional banks uniformly require flood insurance for properties located in designated flood zones because the physical structure serves as the collateral for the debt. When a private seller holds a promissory note or a bond for deed, they assume a comparable financial position regarding that physical collateral. If the home suffers catastrophic water damage, the buyer may lack the resources to repair the structure while continuing to make their monthly installments. The seller is then left holding a contract tied to a severely devalued asset.
Many buyers and private sellers incorrectly assume that federal disaster assistance will bridge the gap if a major storm floods an uninsured home. FEMA statistics demonstrate a stark difference between insurance payouts and emergency grants. Over the past decade, the average National Flood Insurance Program claim payout in Louisiana was $56,400. In contrast, the average FEMA Individual Assistance grant during the same period was only $6,900.
Relying on federal disaster aid is simply not a viable strategy for repairing a flooded house. That average grant is intended for temporary housing and immediate emergency needs, not for replacing ruined drywall, insulation, flooring, and electrical systems. Only an active flood insurance policy provides the capital necessary to restore the property to its prior condition and preserve the collateral backing the transaction.
Furthermore, flood coverage rates and retention have shifted dramatically across the state in recent years. As insurance premiums increased under federal rating changes, approximately 70,000 National Flood Insurance Program policies were dropped in Louisiana between 2022 and 2024. Louisiana's senators recently noted that about seventy-seven percent of federal policyholders nationally now pay more than under the prior system, citing a December 2025 study showing a decline in new and existing policies tied to those premium increases. While some communities work to offset costs, with unincorporated Jefferson Parish achieving a Community Rating System Class 3 rating worth a thirty-five percent premium discount, the overall trend shows fewer properties maintaining coverage. A seller cannot assume that a property still carries flood coverage just because it had a policy a few years ago.
The risk of repeated water intrusion is also highly concentrated in certain properties across the state. Data shows that just over 43,000 Louisiana properties have filed multiple federal flood claims over the past ten years, which is the highest number of any state in the nation. In Orleans Parish alone, eighty-two percent of the 8,568 repeat-flood properties have undergone no physical flood mitigation. A seller financing one of these structures without requiring insurance is taking on severe exposure.
Structuring the Coverage Requirement
To protect the transaction, the initial purchase agreement and the final closing documents should explicitly require the buyer to maintain continuous flood coverage. The purchaser typically pays the costs for property taxes and insurance in these owner-financed structures.
Title companies and closing attorneys play a primary role in ensuring these stipulations are captured before the parties reach the closing table. When drafting the legal instruments for a private mortgage or a bond for deed, the attorney can include clear language detailing the buyer's obligation to carry the coverage. This documented requirement establishes the baseline expectation that the physical asset will remain insured against water intrusion for the duration of the repayment period.
Enforcing that requirement manually can be difficult and contentious for a private seller who lacks the infrastructure of a bank. Tracking annual renewals, verifying declarations pages, and ensuring the premium check clears on time requires constant administrative attention. When the seller tries to manage this directly, a missed notice in the mail can easily result in a lapsed policy right before a major weather event.
Professional Escrow Management
Using a neutral third-party administrator removes the administrative burden and provides professional recordkeeping for the insurance reserves. At Escrow Services, Inc., our firm acts as an impartial intermediary for seller-financed real estate deals. Our private mortgage servicing and bond for deed administration includes managing the tax and insurance reserves through simple automated monthly billing.
During the onboarding process, the title company or attorney submits a Document Preparation Form to indicate the terms of the closing. We use this information to calculate the necessary reserves based on the current property tax bill and the insurance declarations pages. Instead of the buyer trying to save for a lump-sum annual premium, the total cost of the flood policy is divided into twelve equal portions and added to the principal and interest.
We collect this reserve amount as part of the buyer's routine monthly payment via an automated clearing house debit. When the annual flood insurance premium becomes due, Escrow Services, Inc. remits the payment directly to the insurance carrier on behalf of the parties. Professional administration provides stability during federal program volatility, such as when the National Flood Insurance Program lapsed in October 2025 and again after January 30, 2026. Because the program cannot issue or renew policies during a lapse, making timely renewal payments ahead of expiration is important. This active management ensures the policy does not lapse unnoticed and removes the friction of the seller having to manually collect and disburse the funds.
This arrangement provides significant advantages to both sides of the transaction. The buyer benefits from a predictable, bundled monthly housing expense that closely mirrors a conventional institutional mortgage. The seller gains the security of knowing that an independent administrator is handling the premium disbursements, greatly reducing the risk that the collateral will unexpectedly lose its flood protection.
Proper structure and professional servicing secure the entire arrangement. From automated billing to managing the escrow accounts for property taxes and insurance, third-party administration ensures every detail is handled properly. Sellers receive their funds without having to chase late payments, and buyers generate an objective payment history that can help them qualify for traditional refinancing in the future.
Treating a private transaction with the same rigor as an institutional loan is the most effective way to manage property risk.
If you need assistance setting up payment collection and insurance reserves for a seller-financed transaction, call (985) 626-3727.
