Desjardins Group announced as of Feb. 1 it would no longer offer new mortgages for properties in “0-20 year” flood zones — where there is a five per cent chance of flooding in any given year — because of what it called the rising effect of climate change.
There are some exceptions: buyers can get financing for up to 65 per cent a home’s selling price if the previous owner had a Desjardins mortgage and the property has protective measures to prevent flooding. But the company’s decision has left mayors of low-lying towns worried that homeowners will be left with properties that no one will buy or that are massively devalued.
This isn’t the first place this is happening; there is a reason why the State of Florida is becoming one of the largest home insurer in Florida.
That’s because a city can go bankrupt, but a state cannot.
We don’t know if a state can or cannot.
Contracts Clause of the Constitution has been interpreted to mean that they cannot. Of course, since SCOTUS have made clear recently that the only thing that matters is what the majority of the sitting bench agree with, they coule overturn their 1977 finding supporting that view… But as of right now, states cannot default on their obligations to creditors, because they cannot do anything “impairing the obligation of contracts.”