Connecticut mandates flood insurance notification for mortgage applicants

On April 28, 2025, the Connecticut State Legislature introduced Substitute Bill No. 9, aimed at enhancing transparency regarding flood risks in residential real estate transactions. The bill seeks to address the critical issue of flood damage, which is often not covered by standard homeowners insurance policies, thereby potentially leaving homeowners vulnerable to significant financial losses.

The bill includes several key provisions. Firstly, it mandates that creditors involved in mortgage loan transactions must provide written notification to applicants about the lack of flood coverage in standard homeowners insurance. This notice must inform applicants that flood damage can occur even outside designated flood zones and encourage them to consult with licensed insurance professionals about obtaining flood insurance. This requirement is set to take effect on July 1, 2026.

Additionally, the bill stipulates that sellers must provide a flood disclosure notice alongside the residential condition report required by existing statutes. This notice, which must be developed by the Commissioner of Consumer Protection in consultation with various stakeholders, will inform prospective buyers about the flood risk associated with the property. The deadline for this disclosure requirement is also set for July 1, 2026.

Debate surrounding the bill has highlighted concerns about the potential burden on lenders and sellers, who may face increased responsibilities in providing this information. Some industry representatives argue that the additional paperwork could complicate the mortgage process, while advocates for consumer protection emphasize the importance of informed decision-making for homebuyers, particularly in light of increasing climate-related risks.

The implications of Substitute Bill No. 9 are significant. By ensuring that potential homeowners are aware of flood risks, the legislation aims to promote better preparedness and risk management in the face of climate change. Experts suggest that this could lead to a greater demand for flood insurance, potentially impacting the insurance market and housing prices in flood-prone areas.

As the bill progresses through the legislative process, its proponents are optimistic about its potential to enhance consumer protection, while opponents remain cautious about the administrative implications. The outcome of this bill could set a precedent for how states address environmental risks in real estate transactions, making it a noteworthy development in Connecticut's legislative agenda.