When I hear that question, I'm pretty sure

we're talking about a condo building...

Recent flooding in the Carolinas prompted me to re-send this edition on condo flood insurance coverage. A few weeks ago, I did a discussion on the Condo Question-naire, so this seems like a logical followup.

Most people think about Flood Insurance applying to single-family homes, yet ALL properties have flood risk exposure. From the financing perspective, here is how condominiums handle Flood Insurance considerations.

Let's start by going over a few definitions common to all flood insurance:

NFIP - National Flood Insurance Program administered by

FEMA, the Federal Emergency Management Agency

FIRM - Flood Insurance Rate Map showing areas/zones of

relative flood risk and BFEs in a geographic area

BFE - Base Flood Elevation - level to which floodwaters

have at least a 1% chance of reaching in a given year.

Elevation Certificate - document prepared by a licensed

surveyor, engineer, or architect showing a building's

design, position on the lot/property, and lowest point

relative to the BFE.

And one real estate definition:

Condominium - legal structure for multiple-unit properties

in which owners hold title to an individual residential

unit as well as shared interest and ownership of the

building and common areas.

Today we will be discussing condo buildings, not townhouses

or villas which are considered single-family for NFIP purposes.

Condo HOAs are responsible under the property's bylaws and condo docs to maintain insurance against possible hazards to the common structure(s) and shared areas which include:

   -   Entrance and lobby
   -   Roof and exterior walls
   -   Parking areas
   -   Building structure
   -   Electrical, HVAC, elevator, and other mechanical systems
   -   Offices, gym, clubhouse, and other shared amenities

Flood insurance is an important part of that coverage for most condo properties in South Florida. The most common form of protection is the NFIP's Residential Condominium Building Association Policy (RCBAP) which requires that at least 75% of a building's floor area be residential.

RCBAP coverage applies to the common structure, areas, and contents and does not usually cover individually-owned units that are considered at flood risk. Flood coverage for individual residential units can be obtained by the unit owner under what is called NFIP's Dwelling Form.

- Not all water damage is flood damage -

Flood insurance only covers rising groundwater and/or tidal surge damaging a building and its contents. Damage caused by other factors is covered by other types of insurance.

For example - high wind breaks a sliding glass door, then blowing rain comes in and damages flooring, drywall and contents...that is NOT flood damage since surface water did not rise, come through the sliding glass door, and cause damage.

When our water table is this high, it doesn't take much rain

or stormwater to create flood conditions.

The determination of flood risk is generally similar for condo buildings as it is for single-family residences:

     - Year built
   - Flood zone as shown on the FIRM
     - Occupancy including number of units
     - Type of construction, foundation, and first floor design
     - Elevation Certificate, building position and relation to BFE
     - Location of building fixtures, machinery, and equipment

Since all individual unit owners also own part of the common areas and are members of the Condo HOA, they all pay a part of the flood insurance premium.

So yes, that third floor resident does need a form of flood insurance.

All lenders require sufficient flood insurance on any financed property located in an A or V flood risk zone.

When extending a mortgage on an individual condo unit, lenders evaluate the entire building's and association's insurance coverage, including the flood policy.

Buyers in condo buildings should be aware of the HOA's flood and other insurance coverage whether or not they are using financing. The Condo Questionnaire (which we discussed a couple weeks ago) will help show whether coverage is sufficient in light of current risk.

Insufficient building flood coverage can result in significant special assessments to owners in the event of flood damage.

- AND -

Insufficient or lapsed RCBAP building coverage can make it impossible for a buyer to get financing on an individual unit.

If a condo building hasn't been evaluated for flood risk and coverage in the past couple of years, it is HIGHLY advisable for the Board to contact their insurance carrier to make sure everything is up to date. A new Elevation Certificate may be required and building specifics may need to be adjusted.

Proper hazard coverage supports both overall property value and individual unit resales.

Be sure your condo buyers are informed about all aspects of their purchase, including flood insurance on the common areas.

This type of thing may not even cross the minds of buyers looking at higher-floor units. Providing good service to clients involves providing them with the details they need to make an informed decision.

Financing on Florida condos is a bit more involved than

financing for single-family non-HOA properties, so have your condo buyers call me early in the looking stages so they can learn about their financing options.

Well-informed buyers and sellers help make our trip to the closing table that much smoother.

Let me reinforce the trust

your buyer has placed in you! sm