Flood Insurance for Condo’s
Buying a Condo in a Special Flood Hazard Zone
There is a great deal of confusion about flood insurance for condominiums that reside in a special flood hazard zone. If you are borrowing money from a bank they will require you to have flood insurance per FEMA rules. However, why doesn’t the Condo Association provide the flood insurance? Why should I as just one condo owner have to buy it? What if I’m one unit on the third floor out of 30 units and probably will never see flooding occur in my unit? If you find this odd and your Association not providing a Master Flood policy much like one that covers the entire condo association structure; you’re not alone. So here goes my attempt on trying to explain what you need to know as a condo owner when it comes to flood insurance.
Why Doesn’t the Condo Association Provide Flood Insurance?
Good question. Chances are they don’t because it’s too expensive.
It seems logical that Condo Associations should carry flood coverage for all the condo unit owners if any unit is in a special flood hazard area. Just as it does for the building and liability (liability for common areas). However, most often it does not. First, it’s not legally required to carry flood coverage because condo associations do not hold any mortgage, or loan under the association. Flood insurance is only required if a property owner wants it, or the owner has a mortgage and the bank requires it. Since the condo association does not own individual condo owners’ mortgages the association can’t be required to carry flood. So unless the condo docs require the association it is not obligated to carry flood coverage.
So the decision is up to the condo association board of directors on whether or not to carry flood insurance for all condo owners. Unfortunately, the cost of flood insurance deters most boards from doing so. And those condo owners who do not carry a mortgage and would not require flood coverage will see the extra cost as unnecessary; especially if their unit is above the second floor! Chances are if the majority of condo owners do not have a mortgages the board will vote no on flood insurance for all and those who are required to carry flood insurance are on their own. Of course this does not make sense as it does not protect all unit owners interest in the condo association. Here’s why. Let’s say you own a condo in a 12 unit building. the building is three stories with 4 units on each floor. The Condo Association voted to not carry a master flood insurance policy under the association mainly because the majority of owners do not have a mortgage and feel it’s not necessary. The three owners that do carry flood coverage for thie unit reside on the first and second floor. In January a storm hits and causes severe flood damage to the Condo Association building foundation and first floor. The force of the storm surge causes $325,000 in structural, machinery and cosmetic damage. Since there is no flood coverage under the association there is no coverage to pay for the damage. The unit owners that have coverage can only repair their individual unit. The association has no choice but to assess each unit owner equally for the repairs.
What is a RCBAP
When a Condo Association wants to cover all units owners as a whole they get a RCBAP. If in your case they do you’ll need to make sure they provide at least $250,000 in flood coverage for each unit, or 100% replacement cost.
What if the Condo Association Doesn’t Provide Flood Coverage?
On one side you have your bank demanding proof of flood coverage and on the other side you have the condo association stating they don’t have flood coverage and doesn’t plan to provide it. What do you do? As crazy as it sounds you can get flood insurance just for your unit. If you think about this you’ll quickly realize that if a major flood occurs, as I mentioned in the previous section, and damages the entire structure, your small personal flood policy won’t do much. However, that’s how it currently works. The real issue is flood insurance for condo associations can be very expensive. When boards are faced with this large expense and are constantly trying to keep unit owner fees down, you can see how flood insurance is an easy option to vote down.
Private Flood Option
Carroll Steele offers private flood insurance for both residential and commercial property. the benefit of private flood is a much lower premium compared to The Standard Flood Insurance program offered by the federal National Flood Insurance Program. Premiums can be as much as 40% less depending on the property and location. However, not all locations and property will qualify.
Condo Owners With FHA or VHA Loans for Now are Left Out of Private Flood Savings
In late 2018 the federal government finally reversed an old law that did not allow banks to accept private flood insurance. HOWEVER, for what ever reason FHA and Veteran loan programs did not follow suit and as of today these programs do not accept private flood insurance. It’s a real shame because there is no reason for this and it is costing homeowners thousands of dollars each year.
I certainly hope this article helps some of you confused and concerned about flood coverage for your condo. Please feel free to reach out to us if you have further questions, as I’m sure some of you may have! And in case you want to see the actual rule from FEMA- I posted it below.
Why is my lender requiring the purchase of flood insurance?
Lenders are mandated under the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 to require the purchase of flood insurance by property owners who acquire loans from federally regulated,
supervised, or insured financial institutions…