Flood Insurance Webinar Follow-Up
By: Tammy LoVecchio, Gulfshore Insurance (Naples & Ft. Myers) and Greg Marler, Becker & Poliakoff, P.A., (Naples)
We were pleased to present a one-hour flood insurance webinar on August 19th.
Please feel free to view the webinar in its entirety.
We especially appreciate the interest shown and questions raised by the attendees. There were some recurring follow-up questions that warrant brief discussion.
Mortgagee Demands
First, it appears that several owners and associations have recently received demands from mortgage lenders to obtain flood insurance. Some report being asked to increase the amount of current coverage above the maximum available through the National Flood Insurance Program (NFIP), that being $250,000 per home or unit, or in some cases, above the replacement cost of the property. Some associations have even been threatened with force-placed insurance on the entire community.
As we discussed during the webinar, the most common source of the requirement to have flood insurance is the National Flood Insurance Reform Act of 1994, which requires most lenders to require flood insurance on any property located in a Special Flood Hazard Areas (SFHA). But that Act, and all of the regulations and guidelines adopted by FEMA and government sponsored entities such as Fannie Mae, clearly only require flood insurance up to a maximum of $250,000 per home/unit. It is not at all clear why these new demands are being made. It is certainly within the authority of a lender to make risk management decisions and impose insurance requirements in excess of those imposed by the Act. To determine if the lender can then force place insurance on you as a borrower, you must read your mortgage. But there is no legal authority for a lender on a home or unit in a shared ownership community to force place flood insurance on an entire association. Our advice is that you inquire directly with the demanding lender to determine its specific basis for making the request.
Homeowners’ Associations
Some questions seek clarification of flood insurance requirements for a homeowners’ association. Because single family homes, and usually the lots on which they are built, are separately owned and freestanding, insurance on those homes must be obtained directly by the owner. But what about an association’s clubhouse or other amenities? Must the association carry flood insurance for those improvements?
Unlike condominiums, the law governing homeowners’ associations in Florida does not contain mandatory insurance coverage requirements. But you should review your governing documents to determine if they contain insurance requirements. Unless the association has a mortgage on its property, in which case it would be reasonable to expect there are insurance covenants, the only possible, remaining source of a flood insurance requirement on homeowners’ association-owned improvements is the fiduciary obligation of the board to protect and maintain the property against known or reasonably foreseeable risks. We are not aware of any cases that have established that a homeowners’ association has a legal obligation to carry flood insurance. But since the issue will likely arise only after a catastrophic flood loss when the stakes are high, there is some risk to simply dismissing the issue.
To add to the risk, directors and officers liability insurance policies typically exclude coverage for claims against the directors based upon the failure to obtain insurance. It is true that the exclusion can be removed, but obtaining flood insurance is a condition of removing the exclusion. This is akin to obtaining auto insurance on the condition that you agree never to own or drive a car.
Re: Flood Insurance. In a condo situation, I do not see how flood insurance has to be purchased for all units. It does not make sense to me, or am I misconstruing your blog? We have always purchased flood insurance for all condo common areas and association property plus whatever the association covers in the first floor units.,i.e. baseboards, drywall etc. Certainly the second and third floors would not be affected by a flooding situation. Their own home owners insurance would cover any water damages as would first floor homeowners own insurance would cover what the association did not.
RESPONSE: Flood insurance is regulated by NFIP if the property is in a flood zone. Speak to your agent about the amount of coverage required for your community.
would love a seminar in hollywood, or ft. lauderdale
RESPONSE: Please check this site or the Becker & Poliakoff website for information regarding upcoming seminars.
I am a NFIP General Adjuster, and am one of thirty in the nation. It is important for everyone to understand when insuring either the Association buildings or individual condo policies, determining replacement cost is just as, or more importantant than mortgage company requirements.
For example, the RCBAP policy will only pay RCV if the Association has either insured the building 80% to value or the maximum available flood insurance. So if you were to only insure the Association buildings' first and second floor, and its a 8 story building, the Association,would be subject to the co-insurance penalty for being underinsured.
When asking about the individual condo unit insurance policy, it is very critical to understand: THE CONDO UNIT OWNER POLICY WILL NOT PAY A PENNY, until the RCBAP coverage is exhausted!(Policy limits are paid!) If the Association is underinsured (RCBAP Policy) The NFIP will calculate what the insurance should have been, before paying on the individual unit owner policy. In short, the individual unit owner policy will rarely if ever pay!
I'm the insurance committee chair for a condo association on Sanibel Island.
We are bumping into the maximum Flood Insurance limits thru FEMA....$250,000 per condo. Ironically, that is exactly what our FLOOD valuations are....just to rebuild-in-kind. This includes:
- About $220,000/unit to rebuild the whole building exterior plus drywall...
- Plus approximately $30,000 to accommodate the Florida association requirements (2004 statute 718) to replace carpets, cabinets, A/C, etc to the original builder's grade.
Our association buys the full $250,000 Flood coverage.
Additionally, owners buy FEMA flood policies to cover their upgrades...better cabinets, granite counter tops, etc...plus some loss assessment protection....totaling about $50,000 limits per unit (on average).
Problem....That's $300,000 coverage per unit.
I have recently heard that FEMA will limit ALL PAYMENTS to $250,000...regardless of source and coverage....and they supercede and disregard Florida's statue.
So in a total loss situation, the association gets $250,000 / unit......and none of the owner's upgrades are covered. We overbought.
However, in a partial loss situation...say the building wasn't knocked down...only first floor flooded...both policies could get reimbursements....and all owners are given loss assessment protection...correct??
Does case law support the $250,000 max. What are others like us doing? Are they using association funded excess coverage....very expensive...to cover their owner upgrades...as excess coverage doesn't seem practical to the average owner??
We can't be the only one affected by this. Apparently we need a new coverage strategy...so any comments anyone has will be consider!!!!!!
Thanks
Thanks for your helpful seminar....I have a second question....
This is regarding the post flood reconstruction of a "total loss" condo building.
In the live session I heard a comment about a possible $30,000 federal grant available to homeowners to rebuild to current building codes.
For us, compliance would include "elevating the building by 10-12 feet" to avoid future tidal surges....essentially putting a parking garage underneath the building.
We have calculated that if/when we rebuild this would cost us an extra $35-40,000.
I researched FEMA info and found the following grant...but it looks to be for governments only...not homeowners.
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Hazard Mitigation Grant Program
The HMGP provides grants to State and local governments to implement longâ€Âterm hazard mitigation measures after a major disaster declaration. Authorized under Section 404 of the Stafford Act and administered by FEMA, HMGP was created to reducethe loss of life and property due to natural disasters. The Program enables mitigation measures to be implemented during theimmediate recovery from a disaster. A State or local match of 25% is required.
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Can you provide a link to the grant program that was mentioned ( a general mention...was not specific)??
We want to include the STEP in our association's disaster recovery procedures....we want to be ready...
After all, coastline rebuilding is just a matter of "when"...not "if".
A poster above mentioned "not seeing the need for flood insurance in upper floor units". That person should have been with me when I visited Mississippi following Katrina...with a Red Cross program. Every building was flattened.
Thanks in advance for your help...
The only problem is Florida residents are not informed enough.We need more of this kind of meetings.