By Deborah Goonan, Independent American Communities
A few days ago, I warned condo buyers about the risk of being forced to sell their home, even though they’d lose money on the deal. Today I warn condo owners and buyers of another fairly common risk: being displaced from your condo after a fire, but still being obligated to pay your mortgage and condo fees while waiting for your home to be rebuilt.
Dry Creek West Condominiums, Austin, is one typical example of what happens after a condo fire.
One year after condominium complex fire, some still displaced
Published: October 18, 2016, 9:48 pm Updated: October 18, 2016, 10:55 pm
AUSTIN (KXAN) — It’s been one year since a three-alarm fire ripped through the Dry Creek West Condominiums in northwest Austin. Three firefighters went to the hospital after the second floor collapsed. But after an investigation into what happened and several other delays, homeowners still can’t go home.
“It’s hard for me to talk about,” said Denise Hurd, one of the displaced homeowners. “It’s not knowing, and this is your home – this is all I have.”
Hurd’s condominium wasn’t actually damaged by the fire, but because the rest of the building sustained so much damage, she wasn’t able to go back home. But Hurd says after her condo was neglected for a year, there’s black mold in it.
Those displaced have had to continue paying mortgages, HOA fees and possibly rent somewhere else. “The lack of communication makes you feel like you’re being dismissed,” said Hurd.
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I cannot tell you how many conversations I have had with condo owners who wait a year or more to have their homes rebuilt through the condo association. And during that time, many have to pay rent to live elsewhere and continue to make payments on the mortgage and condo fees.
It’s true that your insurance policy may pay rent for several months. (Check with your insurance agent to see if your policy pays for temporary housing.) But in most cases, policy limits run out long before you can return to your home. And, unfortunately, you do not get a break on paying your monthly assessments, even if you are unable to live in your condo.
Why does it take so long to rebuild after a condominium fire?
It’s complicated. There are multiple insurance policies to coordinate – ideally one for each unit, and one for the condo association. Except that, in some cases, an individual condo owner might not have adequate insurance. Maybe an owner has no insurance at all, even though state law usually requires a minimum level of insurance. Since each unit is connected to others, it must be rebuilt, and the money has to come from someone, even if that ends up being all the rest of the condo owners.
Then, of course, the owners’ insurance carriers usually go back and forth with the Association’s insurance carrier, arguing over who is supposed to pay for what components. Commonly disputed: doors, windows, balconies and patios. Although these are exterior components, condo documents often specify that the individual condo owner is partially or fully responsible for replacing these elements.
Some condo associations pay to replace flooring and fixtures in each unit, but many require individual condo owners to carry insurance policies to replace expensive items such as carpeting, cabinets, and appliances. If you do not have the right type of insurance, there will be gaps in coverage that could delay the process of rebuilding your unit.
There are also deductibles on the condo association’s policy, and those must be met before the project can begin.
Bottom line is that there will be costs that are not covered by insurance and regular assessments. A special assessment is likely if the Association lacks sufficient reserve funding to cover the deductible and other non-covered costs. And all owners must pay a special assessment, not just the owners with units damaged or destroyed by the fire. Condo owner policies can include insurance to cover the deductibles, but there’s no guarantee that all condo owners will have a policy that includes this kind of coverage.
Many times, there will be condo owners who just don’t have the money to pay their share. That holds up the entire project. You may be stuck waiting for weeks or months just waiting for your neighbors to pay up.
Then there are policy limitations. For example, perhaps you upgraded the flooring in your unit to wood or tile, but the insurance policy will only pay for carpet or vinyl. Affected unit owners will also have to decide whether to pay out-of-pocket to rebuild upgrades. Each condo owner will have to pay their own policy deductibles, too.
In the worst case, the condo association’s policy might not fully cover the loss of property. If it becomes impossible to rebuild the units that were lost, then the association and condo owners must engage in a legal process of partial termination – effectively paying off the displaced owners and removing them from the condo association.
Reconstruction: Details, details, details
Assuming there can be a rebuild, there will be building permits needed, even before demolition can start. There are countless inspections that are supposed to take place before and after different stages of construction. This process takes a great deal of time, and can be hampered by a manager that lacks the skills to expedite a major reconstruction project.
And some small associations do not even hire a professional manager. Coordinating multiple contractors becomes the job of the condo board, who may choose to hire a general contractor to pull permits and oversee the process of rebuilding.
Of course, there is also the challenge of hiring competent and reliable contractors to reconstruct the condos, and coordinating payment from the insurance money.
By the way, condo owners are wise to monitor exactly how much insurance money is collected and how it is spent.