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Estimating the Risk of Water Damage and Liens Related to Tidelands Hurting Investors

I am writing this paper right after Hurricane Ida brought much destruction and flooding from Louisiana to Rhode Island. Many homes were flooded from overflowing rivers and rain water. Thousands of homes were damaged. Lenders and insurance providers will be working with owners to review home conditions and compensating for damages. Some homeowners who did not have home insurance will need to tap into disaster funds allocated by the state or federal government to pay for home reconstruction caused by the hurricane.

It’s challenging to verify the water damage through BPOs, as flood damage will typically be in the basement or inside the home. When flooding occurs, there should be a record by city inspectors or the permit/code enforcement department stating the damage. However, there are a few title documents or searches that can point to potential future issues during catastrophic events affecting property condition.

  1. Flood Zone Search

This is a standard search during the closing and settlement that would review the flood zone maps and how susceptible your property is to flooding. For example, if the property is close to river banks that constantly flood, the flood zone map will show the property grading. The information can be reviewed by an investor, dropping the asset from the portfolio if the home may be in a high risk area.

2. Area Maps and Satellite Imagery

Area maps and satellite imagery can also be used to check how close the property is to the water, as well as news sources on prior flooding and historical damage to the neighborhood. There are a few startups that use the aerial maps to give the proximity to river, ocean or lakes.

3. Tideland Rental Agreements (and liens showing in title search)

This is the main focus of this paper. We have stumbled many times on the Tideland Rental documents in New Jersey for properties that have the use of a boat, pier or bridge over water. Waterways are a state property and if any structure is below or above water, or were under water at some point, they should have a permit or rental lease agreement with the owner. Specific to New Jersey, a Tidelands Lease is a long term rental agreement from the State of New Jersey for the use of its tidelands, specifically for houses that have been constructed over currently flowed tidelands. Most of the agreements we find are in coastal counties alongside the Atlantic Ocean. The state of New Jersey created a separate division called the Tidelands Resource Council in the Department of Environmental Protection to review tideland applications for structures like boat docks, piers, water sheds, boat lifts, etc. to be compliant with the latest requirements of the counsel. The presence of the Tidewater Agreements, Rental Agreements, Tidewater Liens or Tidewater Inspection Reports in the title search may point to a property with the high risk of flooding or partial flooding of property related structures.

Tidelands Lien Stays with the Property Similar to Municipal Liens

In some cases, the Tidelands Resource Council can place a lien on the property with accrued penalties and interest until the structure located on the property is compliant. For example, if the boat dock is damaged and requires maintenance, the Tidewaters Resource Council will not issue a rental lease to use the dock from the waterside until the structure is in compliance. If the structure is out of compliance, the Tidewaters Lien will attach to the land and property including the home away from the dock structure. The owner should also be current on the yearly payments for rent of the state owned access for the boat from the water side. If the rent is not paid, it becomes a lien and the rental agreement is revoked.
If the structure is in violation of the required state agreement with the owner to maintain the structure, the lien stays with the property and fees will be assessed to the new owner from the date of any ownership conveyance, including foreclosure and Deed in Lieu.
I believe that checking the title search results for any documents related to water proximity, and ordering an unrecorded lien search with permit check for tidelands permit application will protect investors from potential future water damage issues related to flooding. Additionally, reviewing the flood zone search results and aerial or satellite map review to cross reference the results will provide additional validation steps for avoiding costly errors.