Posted by Regal/NC on 6/5/09 8:41am
Msg #291261

Surprise: Flood Insurance Required

Couple purchased condo in Nov 07. While refinancing in May 09 they are advised that flood insurance is required (not required when condo purchased). LO states that per title the area was remapped via FEMA on Jan 05, 07. Building was completed in Jul 07. All sales were through builder's sales office and CW. Now the monies the borrower expected to save will have to go towards flood insurance premium. It seems they maybe able to reduce the amount of their unit coverage based on their HOA having coverage. Building is 85% occupied and no other owner has flood insurance. What would you do???

Reply by TRG_wy on 6/5/09 9:11am
Msg #291269

I would tell the LO and lender goodbye.

This coverage should covered by the complex as you noted. I have seen this here in flood zones (floods that happen every 100 years ya know).

Reply by Linda_H/FL on 6/5/09 9:12am
Msg #291270

Not sure what you're looking for when you say "what would you do?" - nothing you CAN do - it's on the condo owners and the condo association to straighten this out and should have been taken care of prior to signing (no "clear to close" without it) - then up to lender to approve the coverage - again, prior to closing.

In CT (and I stress in CT as that's where my experience is with this) the Condo Association carries the master policies for hazard and flood insurance - the coverage the condo owners take is for the "walls in" (sort of like tenant insurance) with coverage sometimes required by lender for what's called the "betterments and improvements" within the condo. Not sure if flood insurance can be obtained by the unit owners themselves - that's something to be taken up with an insurance carrier.

Reply by LKT/CA on 6/5/09 9:39am
Msg #291284

<<<In CT (and I stress in CT as that's where my experience is with this) the Condo Association carries the master policies for hazard and flood insurance - the coverage the condo owners take is for the "walls in" (sort of like tenant insurance) with coverage sometimes required by lender for what's called the "betterments and improvements" within the condo. Not sure if flood insurance can be obtained by the unit owners themselves - that's something to be taken up with an insurance carrier.>>>

CA is the same, owners get renter's insurance to protect their personal property and the condo assoc. carries the master policy for hazard/flood insurance.

Reply by GA/Atty on 6/5/09 9:15am
Msg #291271

I suspect the HOA policy satisfies the Lender reqs

even if they are acting like it doesn't at this particular moment.

I would call my real estate attorney and get him the lender contact info and a copy of the HOA policy.

Reply by GA/Atty on 6/5/09 9:16am
Msg #291273

If I were the borrower, I mean. n/m

Reply by BobbiCT on 6/5/09 9:18am
Msg #291274

What would I do? Nothing.

Happens all the time. Owners of buildings in a known "flood" zone, shoud get flood insurance; however, they are Not Required to get it. (Risk versus reward of saving on insurance premiums theory.)

Pay cash, no mortgage - skip the insurance expense and take the "flood" risk. Just because one unit owner gets a mortgage from a lender that requires flood insurance, doesn't mean every lender will check the new map. In theory, EVERY lender under sound lending practices is supposed to regularly check that their secured real property hasn't moved into a federally designated high risk flood zone. What that means: Your lender didn't require flood insurance yesterday, but today the Feds re-mapped and re-zoned you into a certain designated flood zone - fine print in your mortgage deed, you now must get flood insurance or your lender can force place it and make you pay. Luck of the draw if sloppy lenders or servicing companies for your loan don't pick this up while your existing mortgage is in place. Interestingly, I've never seen property easily moved out of a high-risk zone. Three times I've seen it done with Very Very expensive, sophisticated topographical and elevational survey certified by a Very Very expensive engineer .... and approved by all parties involved; i.e., if it flood the lender sues the engineering firm that certified it wasn't likely to flood under X conditions.

Reply by BobbiCT on 6/5/09 9:22am
Msg #291277

Condo Association coverage ...

As a note to Linda's post, the attorneys and I worked with one HOA that REFUSED to purchase flood insurance for the building that was "moved" into a flood zone. It didn't have to (read those declarations etc. carefully) and the rest of the association members didn't want to "share" the cost. The other unit owners in the building didn't have mortgages and felt no need to "carry the cost" of flood insurance for the ONE purchaser who was required to get it.

Result: Clients really wanted unit - they ended up paying the full cost for the full building coverage flood insurance premium until they paid for very expensive survey to prove building was just outside the new line.

Reply by Linda_H/FL on 6/5/09 9:30am
Msg #291282

Re: Condo Association coverage ...Bobbi

How'd they get that past their lender/mortgagee..condo decs don't trump loan/lender requirements...or were they lucky enough to go mortgage-free on the condo development...

Reply by Pat/IL on 6/5/09 9:51am
Msg #291290

Redesignation

If I were the borrower, I would first check with the HOA to see if they have a Letter of Map Revision (LOMR) from FEMA. Chances are, the builder submitted a topographical survey and all the other information required by FEMA for a map revision. The map revision would not be reflected on the actual map until the entire map is updated and revised.

The thing about condos in flood hazard areas is that they are considered to be in a flood hazard area if any permanent structure lies within the flood zone. This could be a shed, or even a swimming pool. It would make no sense to insure a single unit (unless the unit is on the first floor of basement).

This is all speculation, but it does seem strange that this would not have come up repeatedly in the last 2 1/2 years.

Reply by Stoli on 6/5/09 1:39pm
Msg #291330

Pat/IL- Please clarify when a loan is subject to TIL, please

"... All parties in title should always sign, whether borrower or not. As to the RTC, TIL etc., depends on whether the loan is subject to the Truth in Lending Act."

I looked up the Truth in Lending Act as well as Regulation Z, both of which are too in depth for a simple notary public/signing agent to pretend to interpret. Is there such an animal as a home loan/refinance transaction which is NOT subject to the TIL Act? I'm not trying to be a jerk, I am really curious.

Reply by BobbiCT on 6/5/09 9:57am
Msg #291293

Linda re entire condo complex mortgage...

Condo development mortgage had been paid years before (pay down as buildings were complete and units sold) the one building was moved into "require flood insurance" zone. Of course, it would be interesting since it was only ONE building with 6 units out of many buildings whether any lender would notice or care; i.e., there would be so much equity in the other buildings, common buildings, etc. it could get overlooked or "waived" on the risk/reward theory.

Non-title searchers often forget, as these complexes age that mortgages are paid off or down with a "nest egg" building from the monthly common charges for capital improvements. Other than the initial "construction phase" mortgage, often another one is never needed or only for a short-term, small amount - replace the pool or new roof on the common building.

Reply by Susan Fischer on 6/5/09 9:21am
Msg #291275

I'd get a good land use lawyer with lots of experience in federal court.

Off the top of my head, before coffee, and over my pay grade...If HOA has a flood ins policy, and unit owner is made to have a policy, unit owner is paying twice, no? Wonder who the loss payee is on the HOA policy.

What a juicy problem.

Reply by Linda_H/FL on 6/5/09 9:26am
Msg #291278

"Wonder who the loss payee is on the HOA policy."

Would be the condo's mortgagee - not each individual unit owner - although I suppose it's possible each unit owner COULD be a named insured...

Reply by Linda_H/FL on 6/5/09 9:28am
Msg #291280

Re: Surprise: Flood Insurance Required...in addition

the unit owners' mortgagee is usually added to the master policy as the loss payee for that particular unit too..at least IME

Reply by Susan Fischer on 6/5/09 9:39am
Msg #291285

Thanks, Linda. So, how would that work in the event of a

loss? If there are two policies covering the same unit, doesn't that open a big can of worms?

Reply by Linda_H/FL on 6/5/09 9:47am
Msg #291289

Re: Thanks, Linda. So, how would that work in the event of a

Not sure, Susan - remember...the coverage the HOA has is for the building - the coverage the owners have is for the interior (walls in) and any betterments and improvements within the condo ...

Reply by Susan Fischer on 6/5/09 10:06am
Msg #291294

Hummm. I'm remembering from working in claims for a

major insuror, that we had hazard policies, and the HO-4 for renters/condos for personal property (from the "paint in."

Is there a similar product offered for flood ins? Because if so, then what good does having that coverage do for the lender and how could they require it?

More coffee...

Reply by Linda_H/FL on 6/5/09 10:41am
Msg #291301

Re: Hummm. I'm remembering from working in claims for a

Okay...not sure if it applies to flood insurance (we know that's federal and a whole different game with different rules)....but with HO Insurance...

The HOA is named on the master policy and their mortgagee is loss payee - as units are sold the mortgagees for each individual unit are added as mortgagees on the master policy....it's been my understanding that this policy only covers the basic unit as initially established...

The HO insurance coverage obtained by the unit owners (for walls-in and betterments and improvements) has the unit owners' mortgagee listed as loss payee..HOWEVER the HOA mortgagee is NOT listed as a loss payee on the unit owners' private insurance...HOA only one pool to dip into - their own coverage .... unit owners' mortgagee has two pools to dip into - HOA's master policy for building loss (and primary, I'd suspect) and unit owners' insurance carrier for loss claims on interior & betterments and improvements -

I think....think I need some more coffee too ...

Reply by Susan Fischer on 6/5/09 11:15am
Msg #291309

Thanks, Linda, you cleared that right up. Here, have a nice

warm croissant.

Reply by PAW on 6/5/09 2:05pm
Msg #291336

Re: Hummm. I'm remembering from working in claims for a

If I remember correctly working with a townhome builder, the master insurance policy whether for hazard (e.g., fire, wind, rain) or flood, covered only the associations mortgagee and the association. Coverage was limited to wallboard out. The condo/townhome purchaser, had to get supplemental or condo coverage for both hazard and flood. The condo coverage was limited to wallboard in and named the condo owner's mortgagee and owner as beneficiary.

Individual condo owners and their mortgagee, were not beneficiaries to the master coverage policy, only the association and the association's mortgagee, if there was one. Likewise, the association and the association's mortgagee were not beneficiaries to the condo owner's policy.

Reply by Linda_H/FL on 6/5/09 2:08pm
Msg #291337

Re: Hummm. I'm remembering from working in claims for a

"Individual condo owners and their mortgagee, were not beneficiaries to the master coverage policy, only the association and the association's mortgagee, if there was one"

Not the condo owners so much but as to their mortgagees, if this is accurate, then why does the owners' lender require they be added as a mortgagee on the master policy?

Reply by PAW on 6/5/09 9:23pm
Msg #291469

Re: Hummm. I'm remembering from working in claims for a

The condo owner's mortgagee needs to be included for notification purposes. I don't think that the owner's mortgagee becomes a direct beneficiary, maybe an indirect beneficiary, not sure. I don't do insurance so I'm not real clear on all the ins and outs necessary with condos, townhouses and multi-family dwellings.

Reply by Linda_H/FL on 6/5/09 10:47pm
Msg #291476

I understand Paul..but this of this scenario

Let's say the building containing said unit catches fire to the tune of a total loss, and not as a result of any wrongdoing by the condo owner, whose coverage is on the hook? Since the condo owner only insures walls-in, betterments and improvements, and condo owners are not required to insure the entire building itself, it stands to reason the HOA master policy comes into play for the building loss, therefore insuring the unit's mortgagee....right?

Reply by PAW on 6/6/09 12:25pm
Msg #291499

Re: I understand Paul..but this of this scenario

No. My understanding is that the associations insurance does not cover anybody's contents (wallboard in). A claim would need to be filed by the condo owner to their own insurance company. Just like the association would need to file the claim with their insurance carrier. However, insurance companies do work together (or fight each other as the case may be). Loss mitigation is an area of expertise of those who investigate the loss.

When my daughter's apartment building was destroyed by fire, she had to file a claim against her insurance. After investigation, the fault was found and her insurance company recovered from the building owner's insurance company. I don't know if the insurer of the tenant who caused the fire paid for the claim made by the building owner's insurer, but I'd bet dollars to donuts that a claim was filed to recover damages.

Reply by Linda_H/FL on 6/6/09 12:32pm
Msg #291500

Re: I understand Paul..but this of this scenario

"My understanding is that the associations insurance does not cover anybody's contents "

But we're not talking contents here - I agree that falls under the unit owner's coverage - we're talking the entire base STRUCTURE here - and unit owner's coverage won't cover that - that falls under the HOA coverage...MHO

Reply by BrendaTx on 6/7/09 6:48pm
Msg #291540

If there is a mortgage on the unit

of our condos the HOA is obligated to provide them (lender) a copy of the insurance policy. That's how it is stated in our bylaws/CCRs. (I should know. I just read mine.)

I don't think the master policy has to list each mortgagee but just has to be able to provide proof that the same is in force.

I just got a copy of our master policy. No lenders listed on it. Haven't read the fine print.

Is what I just said even relevant? You guys lost me a long ways back.

Reply by sue_pa on 6/5/09 2:17pm
Msg #291338

Re: Hummm. I'm remembering from working in claims for a

Hummmmm ... I haven't taken a real estate law class in several decades but I seem to remember in PA there are 3 ways they are designated ... and that's done when they are established initially with their declarations ... outside walls in, inside walls in (sort of like your paint in) and I am completely blank on the other way ... it will pop into my brain some morning about 4:00 a.m.

Reply by Susan Fischer on 6/5/09 2:50pm
Msg #291344

4 am? Ooooh, by all means call - I'll be up pouring over

the case law - <HUGE wink>

Croissant? All nice and warm...yummm

Reply by Linda_H/FL on 6/5/09 3:09pm
Msg #291346

Alrighty then!! You two go ahead with your 4AM tete-a-tete

fill me in tomorrow....LATE tomorrow...

Reply by Gary_CA on 6/5/09 3:49pm
Msg #291350

Re: Hummm. You're memory is fading...

But not much, and now that I try to clarify, mine is too...

There are two HO-X (well more than two) one for renters and one for condo owners. I think one is HO-3 and the other HO-4 but I can't swear.

As I understand it they all cover contents/personal property but the condo policy also covers that part of the structure the condo owner owns ---interior walls, etc.

The renters policy is truly "paint in"

I believe both have specific liability coverage in case the insured were to damage the structure he doesn't own through negligence...but I'm even fuzzier on that.

I was an insurance agent at the time of the 1989 earthquake and got to work the claims storm with the claims team they sent in. It was an exciting, exhausting two weeks.

Reply by Dennis D Broadbooks on 6/5/09 4:20pm
Msg #291363

Your Memory is Gone, Gary...

...the renters policy is classified as an HO-4 & the individual condo owner policy is known in insurance terms as an HO-6. The renters policy from a physical loss standpoint only covers personal belongings (if you want to call that "paint in", so be it) while an HO-6 policy CAN also cover the portion of the building owned by the insured which is not covered under the master policy. That's where it becomes very important for the individual condo owner to know definitively what's covered & what's NOT covered under the master association policy. HO-6 policies "normally" don't show mortgagees as an interest as they're listed under the master association policy.

You need to stick with besbol...it's been berry, berry good to you so far this year.

Reply by Gary_CA on 6/5/09 5:30pm
Msg #291417

Re: Your Memory is Gone, Gary...

Ah.. I was close (so was Susan) I've been out of that scam since 1991.

My Dodgers have been slippin' a little lately, time to get rekindled.

Reply by Dennis D Broadbooks on 6/5/09 7:07pm
Msg #291426

You're Maintaining...

...an 8 game lead even though the "Boys in Blue" are 6-4 for the last 10 games. The Cards are still tied for 1st with the Brew Crew even though they've only played .500 for the last 10. Albert is proving once again there's no one better on this planet when it comes to hitting a baseball. Phenomenal!

Reply by Regal/NC on 6/5/09 9:42am
Msg #291286

Tks 4 the feedback...

in my mind. The borrower would have to acquire coverage for their items within their Unit as the HOA's coverage is for "common" areas only.