Why Flood Insurance Is a Big Issue
One of the most important functions of the Board of Directors of your condominium assocation is to provide adequate insurance. This insurance differs from your own individual homeowner’s policy you have on your individual unit. We’re talking about insurance on the common areas of the building. Each unit owner has a proportional interest in the common areas. This insurance is paid for through the unit owners’ monthly maintenance charge. What type and how much insurance a condo association should have is determined by the by-laws of the association and also by state regulation. In addition to liability insurance, it is also necessary for a condo association to have flood insurance. As we all know, Hoboken has an issue with flooding and, more importantly, almost all of it is located a flood zone (technically called a Special Flood Hazard Area or SFHA). Here is an interesting flood zone map.
Recently, there have been quite a few buyers who have had problems getting a mortgage for the Hoboken condo they wish to purchase because they learn that the condo association does not have adequate flood insurance. Often times the lender requires that the condo have replacement value coverage.
This straight from the FEMA website:
Federal financial institution regulators state that the amount of flood insurance purchased for a structure in a high-risk area must at least equal the outstanding principal balance of the loan, the insurable value of the building, or the maximum amount of coverage available for the particular type of building under the NFIP, whichever is less. However, the lender may exceed the minimum requirements, if necessary, and compel the purchase of limits that more fully protect the lender and the property owner.
What’s more, most loans being made today are sold on the secondary market and must therefore comply with Fanny Mae and Freddie Mac guidelines. These guidelines may be even more stringent. More specifics are available on the FEMA site or by speaking with a mortgage lender and insurance agent.
Some buyers have the seller go to the condo board and try to convince them to increase the insurance coverage. Of course, there is always resistance since more insurance means more premiums. Yet Hoboken condo boards should not be short-sighted. The marketability of each unit is at stake here. While it may not be your unit for sale today, every unit owner is likely to come up against this issue when they try to sell. In fact, a Board that does not arrange to provide adequate insurance coverage for the condo may find itself hit with a lawsuit from the unit owners and Directors could even be held personally liable.
Similarly, condo associations are supposed to have separate accounts for their day-to-day operating expenses (paying the PSE&G bills, for example) and for a capital reserve account (replacing the roof). Many Hoboken condos, especially smaller, self-managed ones do not. Again, buyers are having real problems obtaining financing as a result.
So at your next condo Board of Directors meeting (you do have those, I hope) it might be worth reexamining the adequacy of your flood insurance and the state of your condo’s finances. The flood insurance guidelines are also set out on the FEMA website and are quite detailed and specific. When you go to sell your unit, you will be glad you did. If you are in the market to buy a condo in Hoboken, this is a question you should ask early on in the process – either during attorney review or even when making an offer. A condo that is not adequately insured and has not kept its books correctly is certainly worth less than one that has, no?