EDITOR: In the aftermath of the building collapse in the condo association in Florida, I wonder how many owners had HO-6 (condo-owner’s) insurance. Many in multi-family residences don’t bother to buy it, mistakenly thinking that the association’s master policy will take care of them.
Well, these folks are about to find out differently! By covenant, the HOA’s policy only covers certain commonly-owned property. In some communities, it’s just the structure and exterior walls. Even so, in this case, the property insurance is not going to be in amounts high enough to cover reconstruction, because no one ever envisioned that this would ever be needed. And then folks think the U.S. government, through FEMA, will take care of them. FEMA is bankrupt, and doesn’t take of private losses such as this. It only takes care of natural disasters.
To make matters even worse, the mortgagees will still expect mortgagors to continue making monthly payments on their loans. Of course lenders can foreclose, but on what will they be foreclosing? Each one’s share of a pile of rubble? But this will affect the homeowners’ credit scores.
Liability claims? People have 2 years to file liability, personal-injury and wrongful-death lawsuits, but it will take much longer than that to settle all of them. The settling process won’t even begin until experts are able to definitively prove what the cause of the casualty was. And none of the parties is going to have liability insurance in the amounts that will be demanded in all the suits. The association itself will be sued, so it will be a defendant. And it will be a plaintiff, so there will be legal expenses and court costs that will have to be paid.
Yes, the association is required to have both liability and D&O coverage, but again, the amounts in toto will not be sufficient. What happens in this case is that each owner will be assessed a “loss assessment” to cover the cost of rebuilding the structure and commonly-owned property. This will be about ten times what the previously-levied assessment was going to be. There will be no owner who will have insurance coverage or money in the bank to cover what the loss assessment in this case is going to be. Guaranteed. And what if the structure that was not demolished has to be torn down by law? Most cities require complete demolition and rebuilding if the damage exceeds a certain percentage of the entire structure. Insurance does provide such coverage, but again, ONLY up to purchased limits. In short, there will not be sufficient coverage by anyone’s policies to cover this event.
What I’m envisioning is this (and the association’s attorney as well as the attorneys for each of the owners will most-likely end up advising the owners): Declare the entire condominium building and property “obsolete.” This will take an affirmative vote of a super majority of owners–either 2/3, 3/4 or higher. Then, after paying for demolition, removal and disposal, sell the land to a developer and split (according to each-owner’s ownership interest as per the Declaration of Covenants, Conditions and Restrictions) the “profit.” Hopefully, this might be enough to make each owner whole if the land is able to be sold for a high-enough amount. In this way, the owners can take what money they get and move on with their lives. In this case, they should never expect to be made whole. Someone needs to prepare them for this.
The covenants and city ordinances have provided for handling events such as this, even if the association itself, the board, the individual owners and their insurance carriers have not, and those will have to be complied with, regardless of whence the money comes. Variances can be granted, but will need to be requested on an individual basis. These are going to be trying times for these poor owners, but the thing is, this is the way it would be for any condo association, even here in Colorado. A word to the wise should be sufficient and both owners and boards should make sure they have sufficient insurance coverage and procedures in place for dealing with the aftermath of a casualty.
(I am a retired community-association manager with 25.5-years’ experience.)
— Joe Felice, via [email protected]