By Michael J. Gelfand, Esq. / Published March 2022
It never was “if.” It is “when”! Living in Florida, we have observed that hurricanes are more and more frequent—not always making landfall, but dangerous in their approach.
On the heel of these storms, whether we are in a hurricane’s “cone of death” or buffeted by a gale, association claims for property damage will follow. It is imperative for a community association to know what its insurance policy will cover and how can it obtain benefits if damage occurs. Also, there is a need to properly document claims and retain documentation. This is not just in the abstract; education should include directors, managers, and owners.
Recently, a Florida appellate court addressed procedures for processing an association’s storm property damage claim. The facts in American Coastal Insurance Company v. Ironwood, Inc., 46 Fla. L. Weekly D 2315 (Fla. 2nd DCA, October 27, 2021), indicate that in 2017, Ironwood, a Naples condominium association, filed an insurance claim for roof damage caused by Hurricane Irma. After insurer American Coastal determined that the roof damage was covered under the policy, the insurer made payments and the claim seemed to be resolved.
Not quite resolved, though, because two years later the association filed another claim for damage caused by Hurricane Irma, but this time to doors and windows. The insurer requested additional documents from the association. Before the insurer made a determination on the claim, and without providing all of the documents requested by the insurer, the association invoked its right to an appraisal pursuant to their insurance policy and filed a lawsuit against the insurer for breach of contract.
The association moved for a stay of the litigation to place the lawsuit on hold and also moved for an order compelling an appraisal. The trial court granted the motion compelling an appraisal. The Florida appellate court reversed the trial court order of appraisal. The court explained that the insurance policy required that the insured provide to the insurer all documents that the insurer “may reasonably require.” Under the insurance policy the association was not entitled to an appraisal of its property damage if the insured does not respond to the request for documents. The trial court failed to address whether the insurer’s request for documents was reasonable before compelling an appraisal.
The appellate court further explained that the insurance policy defined a supplemental claim as any additional claim for losses from the same hurricane. While the original roof claim was recognized by the insurer to be caused by Hurricane Irma, the windows and doors claim was in some respects a new claim. The “alleged losses related to damage to windows and doors is therefore a supplemental claim for which a coverage determination must be made before the contractual appraisal right ripens.”
This decision emphasizes the importance of properly complying with an insurer’s request for documents based on an insurance policy if an association files a claim for property damage based on that policy. The insurer is entitled to all documents it may reasonably require before it makes its decision as to whether the damage is covered by an insurance policy. This also means that associations should properly document and retain documentation of claims. If you have any questions as to what is required to be submitted, contact your association’s counsel.
Not everyone is waiting for the Florida Legislature to take up the Condominium Life Safety Advisory Task Force’s recommendations following the Champlain South Tower Condominium collapse in Surfside. With much at risk, lenders called upon the Federal National Mortgage Association, also known as Fannie Mae or FNMA, for guidance on how to manage the risk associated with aging buildings.
In response, for loans closing on January 1, 2022, and thereafter, Fannie Mae issued temporary requirements applying to all mortgage loans it underwrites in projects with five or more attached units. The definition includes not only most Florida condominium and cooperative associations but also many Florida townhome associations.
In a significant change of policy, mortgages secured by units in projects with significant deferred maintenance will not be eligible for purchase by FNMA. Failing local regulatory inspections or recertifications will also remove for those projects FNMA mortgage loan participation.
Reinstating mortgage eligibility can be sought, but only after a satisfactory engineering or inspection report, certificate of occupancy, or other substantially similar documentation which shows the repairs have been completed resolving the building’s safety issues.
These requirements do not apply to associations that undertake routine maintenance or repairs, or when damage or deferred maintenance is isolated to one or a few units and does not affect the overall safety of the project, such as usual water damage to one unit from a leaky pipe.
Current or planned special assessments must be reviewed by the lender. If the special assessment is related to safety, soundness, structural integrity, or habitability, the work must be fully completed or the project will remain ineligible.
“As a best practice, the lender should review the past six months of a project’s association meeting minutes and obtain information about any maintenance or construction that may have significant safety, soundness, structural integrity, or habitability impacts on the unit or the project,” FNMA advises. “We recommend that lenders review any available inspection, engineering, or other certification reports completed within the past five years to identify deferred maintenance that may need to be addressed. As a reminder, projects engaged in construction defect or other material litigation are ineligible.”
You do not want your community to be identified as non-compliant by FNMA. The inability to obtain FNMA mortgages likely would significantly adversely impact many Florida communities. Note also that the FNMA guidance will result in lenders seeking more information from associations, including minutes and repair contracts.
Michael J. Gelfand, Esq.
Senior Partner, Gelfand & Arpe, P.A.
Michael J. Gelfand, Esq., the Senior Partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a dual Florida Bar board certified lawyer in condominium and planned development law and in real estate law, a certified circuit and county civil court mediator, homeowners association mediator, an arbitrator, and parliamentarian. He is a past chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at firstname.lastname@example.org or (561) 655-6224.