HOA FLOOD INSURANCE

Started by TomW • 5 replies • 1798 views

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TomW (Utah)
Posts: 31

Posted:

I am the president of an 80 unit HOA consisting of two four story concrete and brick buildings in a ski resort town in Utah. Recent elevation certificates indicate that the first floors of both buildings are located in an AO flood zone with the elevations of the first floors 2' below the base floos elevation. The engineering firm that provided the certificates stated that the only flooding that is likely, due to slope of the land, is minor sheet flooding, and that possibility is remote.
Our legal counsel has informed us that our CC&R's do not dictate that flood insurance be carried by the HOA, however, many mortgage lending institutions will not provide financing without flood insurance coverage. The replacement values on both buildings is $9,000,000 each, and to not incur a coinsurance penalty, we need to insure for 80% of the replacement cost, which results in an annual premium of approximately $40,000. Owners without a mortgage are willing to accept the risk, however, owners with a mortgage or new buyers trying to obtain financing, want the HOA to pay the premium to obtain or maintain financing.
Our present total annual operating budget is around $400,000, without flood insurance.
What are our options?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Flood insurance is an option to have in many states. It's an option here where I live. There is a process you have to go through to even be listed in a flood plain. Which a map of the flood plain should be available in your area for you to view to verify your flood plain accuracy. If you have a county extension or EMA type service in your area, they should have a copy. I wouldn't go by just what you were told as the mortgage and insurance company is going to go by the same source of material to determine your flood plain potential.

A HOA is funded by it's owner's for it's owners. So if your HOA votes to add the flood insurance, then you will have to compensate by raising dues or having a special assessment. It's important to note to the owner's who don't have a mortgage that is this is just as important to them. That is because if they ever plan to sell, it's most likely to a person who will need a mortgage to purchase the property. If they are limited in their options of getting a mortgage, then it's going to be much harder to sell their property. Plus, they need insurance coverage too. It's NOT like it's going to flood around the property without a mortgage...

Make sure this also isn't an individual homeowner's responsibility to add onto their own insurance. Since your shared then I would assume the flood insurance would be on the HOA. However, it doesn't hurt to check out a variety of options. It does seem like flood insurance option may be a good evil in your case. Just make sure everyone understands that ALL members have to cover this cost with their dues.

Former HOA President

LarryB13 (Arizona)
Posts: 4,099

Posted:

Not knowing too much about insurance, I would think that if the HOA bought flood insurance it would cover only the HOA's property. Individual owners would likely need their own coverage, just as the HOA's fire insurance would not cover losses incurred by an owner.

Whether your association chooses to buy flood insurance or not, I would recommend sharing the engineer's report with all owners and let them make an informed decision for themselves.

Have you found out what the insurance would cost? Several years ago my wife and I looked at home that was located in one of the highest-risk flood zones. I was surprised to find that the flood insurance added maybe 10 percent to the insurance premium. (We did not buy the home.)

BradP (Kansas)
Posts: 2,640

Posted:

Tom:

Great advice so far, I think you need to share the report with your members and let them make the decision on whether to insure themselves. As for the HOA, you need to weigh the probability of having a flood, cost of insurance and cost to repair/rebuild if you got flooded and make an educated decision as an HOA. $40,000 is a lot of money but so is 9 million. Not an easy decision and not sure we can point you in the right direction or not...

PetunkaM (Florida)
Posts: 1,009

Posted:

Tom,
I went thru all this a couple of years ago. If you are HOA you cannot purchase flood for the buildings. However, if you are a condo you can. The individual owners would only need to cover their belongings (optional). The $40K quote came from FEMA? Sounds a little high to me but again I have not checked their rates this year.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

however, many mortgage lending institutions will not provide financing without flood insurance coverage. What are our options?

If you live in an area that is flood prone and banks are requiring flood insurance, you dont really have any options. You need to get flood insurance and raise everyone's dues. If people want to sell their home and no mortgage company will give a buyer mortgage you have a real problem.

Yes, flood insurance is really expensive.

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