Does the talk of insurance make your eyes glaze over? If it does, join the club. Insurance of all types is complex and difficult to understand but in the case of homeowner’s insurance, condominium insurance and flood insurance, it’s getting worse.
I recently learned that condominium insurance in coastal areas is skyrocketing by as much as double over last year’s renewal. This is primarily because 2022’s busy hurricane and storm season left the southwest coast of Florida with unimaginable damage. Insurance companies have left the state leaving very few options for coastal communities. This has compounded the existing problem of fraudulent lawsuits being brought against insurance companies that would not reimburse for overinflated home repairs.
Now we’re also facing increases in flood insurance based on a 2021 FEMA decision calculating policy costs. FEMA’s new method is to equitably distribute premiums across all policyholders based on the value of their properties in addition to their location. The increases will give sticker shock to everyone in both single-family homes and condos. The good news is that readjustments will be phased in over a period of 10-15 years.
The challenge specifically to condominium associations is to come up with the unexpected premium payment. Most associations will need to special assess their owners which creates a potential problem for owners who are considering selling.
The Florida condominium rider requires a seller of a condominium to make the following representation: “Seller represents that seller is not aware of any special or other assessment that has been levied by the association or that has been an item on the agenda or reported in the minutes of the association within 12 months prior to the effective date of a contract for sale.” This is a mouthful, but it’s pretty clear language. The problem is when does a “potential” assessment need to be disclosed?
Like any other disclosure when selling property, always err on the side of caution and disclose everything. For instance, possible disclosures could include if an improvement that could lead to a future assessment is in the minutes from a previous meeting or on an agenda for an upcoming meeting, if there is any indication that an improvement could lead to a future assessment included in any mailing to any unit owner or even if a conversation with a board member indicates the possibility of an assessment.
Anything that even has a hint of a special assessment needs to be disclosed to a potential buyer to protect the seller from future liability. On the other hand, if a seller truly had no knowledge of the possibility of an assessment and it was never discussed at a meeting or was never an agenda item, the seller is likely protected from post-closing liability.
As far as insurance increases, there is a glimmer of hope. The lawsuits against insurers have been somewhat addressed by the Florida Legislature putting in place tort reform starting next year. Hopefully, this will encourage insurers to return to Florida’s enormous marketplace, creating some competition with the benefit of leveling premium costs.
We live in litigious times in a state surrounded by water and prone to hurricanes. Sure, it’s the price we pay for living in what most of us feel is a little bit of paradise. Nevertheless, stay on top of all the insurance issues and what your obligation is for disclosure with a clear eye.