Flood insurance: Condos and the rising tide

By Jimmy Jackson

Perhaps you’ve noticed homes in Norfolk’s Larchmont neighborhood jacked up several feet to escape flooding, or you’ve seen chilling news photos of single-family houses or townhouses surrounded by floodwater.

Sights like these may give the impression that single-family homes, whether detached or attached, are the primary residential structures vulnerable to flood dangers.

But don’t assume you’re high and dry just because you own a condominium. Sure, you might think that because you’re in a second-floor unit, or because your half of the condo development stays dry when the other half has standing water, you are safe from the need for flood insurance.

Experts say otherwise.

“They should be concerned because water doesn’t care about the ownership structure of a property. It doesn’t care if it’s a condo, apartment, single-family house or mobile home,” said Richard Braun, president of the Braun Agency, Nationwide, a Virginia Beach-based insurance agency.

As a condominium owner, you own your unit. But additionally, Braun emphasized, you also own “a fractional share of the whole condo development.” That means you have obligations to maintain not only your condo development’s clubhouse, paved areas and other facilities, but the roofs and exteriors of all units.

One way this is commonly accomplished is through a master liability and casualty insurance policy obtained by your condo association. The casualty portion, for example, provides fire and extended coverage to replace or repair structures damaged or destroyed by fire.

“Every association is managed by their condo documents” and bylaws, Braun said, so if you want to verify whether your development has flood insurance, inspect your association’s bylaws and documentation. He said your association’s budget should also indicate how much it spends on flood insurance.

If an association board skips flood insurance, simply acquiring flood insurance for your own unit isn’t sufficient. Consider this scenario excerpted from www. allpropertymanagement.com:

“If Joe insures his condo, but Jane next door doesn’t insure hers, and there’s a flood, and Jane can’t repair the damage on her side of the wall because she can’t afford to, Joe’s property values will be substantially negatively affected. Furthermore, suppose Joe and Jane both cover their own units individually, but the board never secures coverage for the common areas. The pool area, weight room, lobby and administrative office are submerged in a flood.

At best, the board of directors would have to enact a massive assessment to raise money to repair the damage. Many condo owners won’t be able to afford it. The burden would be borne by a few unit owners with the liquidity to come up with the cash – if then – and they’d probably sue the others for failing to pay their assessments! What would happen to the value of the property in the interim? It would be a disaster.”

FEMA offers condominium coverage via the National Flood Insurance Program, including the Residential Condominium Building Association Policy, which provides coverage for residential condominium buildings without imposing the burden of purchasing individual policies for each unit.

FEMA also warns associations in flood zones against skipping insurance: “Unit owners need to be aware that, if for any reason a condominium association elects to discontinue its RCBAP, individual unit owners may be responsible for covering flood damage. That is why having flood insurance and proper coverage is important for all residents living in condominium buildings, including high-rise condominiums. It doesn’t matter if you live on the first, third or 10th floor, every unit owner has an undivided interest in the common elements of the building and can be assessed for unpaid damages to common areas even if their own unit remains undamaged. Also, condominium by-laws require all unit owners to be assessed for uninsured damages to common areas of a building if damaged by flood.”

Additionally, Scott Wegner, a flood insurance expert with Prosper Insurance Group in Virginia Beach, said mortgage lenders may also insist that condominiums in a flood zone have flood insurance as a condition for getting a loan or financing a purchase. Flood insurance protects lenders’ investment in your property.

Moreover, banks often choose to sell their mortgage loans to Fannie Mae or Freddie Mac, but neither entity will buy loans on properties that face a flood hazard and do not have flood insurance. This gives lenders yet another reason to demand that borrowers, including condo buyers, have the protection of flood insurance.

Jimmy Jackson, ABR, GRI, SFR, with Rose & Womble Realty, is chairman of the Hampton Roads Realtors Association’s Common Interest Community Forum.