Water Damage Prevention

Water damage claims can be very expensive to deal with, cause untold frustrations and have the potential for a living nightmare within your HOA complex. While you cannot prevent every possible situation where water can cause damage; here's a list of simple steps every association can take to reduce/eliminate many causes of water damage issues.

Washing machine hoses. If your complex has a central laundry room or laundry rooms within the individual units check the hoses that connect the machine to cold/hot water. If the hoses are rubber (either black or gray) consider changing them as soon as possible to metal-braided (sometimes called "no-bust" hoses) hoses. The rubber hoses only have a useful life of between 2-5 years; beyond that it is only a matter of time before they fail causing a water gushing flood. Without a doubt the situation is easier to remedy if the complex has a central laundry room; the Board can just decide to make the expenditure and have old hoses replaced. It is a little more tricky if the laundry rooms are within each condo/town home. In this situation it is in the best interests of not only the unit owner, but also everyone in the complex to not have a massive flood caused by a broken washing machine hose. A little creativity may come into play here; perhaps offering a financial incentive or obtaining special pricing from a bulk purchase at a local hardware store may help motivate homeowners.

Plumbing connectors under sinks or to toilets. Take a look at these connectors; sometimes they made with lesser quality connectors like plastic or rubber tubing. Upgrade these to metal connectors if you don't already have them; make sure you use a competent, licensed plumber to do the job. As these connectors will be with the individual condo/town home units, same process as above for motivating homeowners to spend the money to get it done.

Sink/toilet back-ups. It's not a bad idea to have a competent, licensed plumber check/clean-out drain pipe systems periodically for the complex. When you think about all that should not be flushed down the toilet, put down a garbage disposal or allowed to drain into a sink you can only assume that a lot of pipe clogging is going on in a complex. Perhaps this could be a cost built into the annual maintenance budget; it should definitely be a newsletter topic to educate unit owners about what gets put down plumbing fixtures.

Landscape sprinklers. Need to be periodically checked for broken sprinkler heads and where water is being sprayed. The same would be true for rain gutters that either leak, overflow or deposit runoff in an incorrect manner. You should have a process to report sprinklers that are problematic.

In these difficult economic times "an ounce of prevention" should still be the philosophy of the Board to reduce the chances of a catastrophic problem in the future.

Workers Compensation Insurance for Homeowner Associations

Workers compensation insurance provides coverage to workers who are injured on a job; it prevents the situation where a worker has to sue his/her employer to recover costs associated with a work-related injury. So why would a homeowner's association need worker compensation insurance: an association typically does not have employees and the service providers used are required to provide a certificate of insurance? While this may be true consider this: 1) most CC&R documents state that an association should have workers compensation coverage; and, 2) a certificate of insurance can provide a false sense of security as the service provide may have given you a certificate months ago yet allowed their policy to lapse recently due to non-payment of premium. Particularly during difficult economic times the later can occur frequently as service providers such as pest control, roofers and painters can face premiums that are on the higher end of the rate range to begin with.

Not only does the coverage serve as a back-up against unknowingly using an uninsured service provider; board members and authorized volunteers performing duties on behalf of the association can also be covered. There are situations where board members tasked to complete monthly safety/complex inspections sustain an injury while carrying out these duties. Most of the time these minor injuries are not a big deal and never get reported; once in awhile they are turned into a "Federal" case.

Your association master insurance policy does not contain workers compensation coverage as a standard feature; it is an optional coverage. Board members would be prudent to have this optional coverage; the cost ranges from $550 to $1,000 per year. Anticipating potential problems before they happen is always a good policy.

Fannie Mae Guidelines-Part 2

This is a continuance of my prior post on Fannie Mae lending guidelines that impact buyers/sellers of condominiums and town homes. Prior to the issuance of revised guidelines last year a lender had no interest in whether or not buyer had unit owner coverage; now unit owners will be required to have coverage prior to the close of escrow just like a buyer of a single family home must provide evidence of insurance before escrow can close.

As this new requirement will cost the buyer additional money it may seem that the long-arm of the government has once again extended its reach beyond where it needs to be. However, this development is a positive for all of those who reside in condo or town home communities; let me explain. All community associations are required to have a master insurance policy that protects the complex and association. However, in the event of destruction of one or all buildings in a complex most association master policies only cover the rebuilding of the exterior of the building. Individual unit owners bear the responsibility of rebuilding the interior of the unit - drywall, flooring, kitchen cabinets/fixtures, interior walls, etc. If a unit owner does not have an individual policy or his/her policy does not have the coverage to rebuild the interior this financial burden falls to the savings of the unit owner. Depending on the size and amenities of the unit this bill could range from $40,000 to $150,000+.

An example of how the current situation negatively impacts associations let's say a building containing eight units is a complete loss due to an accidental kitchen fire. The association master policy provides money to rebuild the building exterior and six of eight unit owners receive monies from their individual unit owner policies to rebuild the interiors of their units. Unfortunately two unit owners did not purchase an individual unit owner policy (the national average is 25% of unit owners do not have coverage) so they will not be receiving a settlement to rebuild. If they are like most people they may not have the personal savings to fall back on either; so you have the very real possibility of these two unit owners walking away from their homes and foreclosing. For the association there is a loss of monthly dues and other issues that come with having empty units. Do the math on a 300-unit complex where 25% of unit owners are caught short; it is not a pretty picture.

All unit owners should check their individual insurance policies to make sure they have a coverage called building property (some carriers call it dwelling). Many unit owners who have policies have no or insufficient building property coverage because they bought strictly on price. The key question here is do you have enough coverage to rebuild the interior of the unit the way you have it now? Some associations has master policies that provide coverage for both the exterior and interior of the building; it's best to check with your agent to determine exactly what is covered.

Water, Water Everywhere

HOA boards/property managers can serve their association members well by continuing to look into the future to spot issues before they become problems. A pro-active action can save your association thousands of dollars, possibly prevent legal actions, drain on reserve accounts and the need for special assessments.

One item that is currently on my radar is sewer/drain back-up coverage. By this I mean the potential of a water back-up due to local government not keeping storm drains properly cleared. Let's face it, all local municipalities are dealing with stretched budgets and maintenance such as storm drain clearing may be delayed or ceased all together. If you association complex just happens to be located where a local municipality had to postpone storm drain maintenance think about the potential for a water back-up during a very heavy rainstorm.

In your association master insurance policy there is a coverage for sewer/drain back-up which would coverage damage/clean-up related to such an event. For most the default coverage limit is very low, something like $5,000; an amount that would be hardly enough to make a dent in the sizable bill you will get when a restoration company works for a week to clean up the mess. Consider raising this coverage to at least $100,000; more if you have a larger complex with significant first floor exposure to flooding. This coverage is quite inexpensive so there's really no financial reason not to have the higher coverage amount. Make the review of this coverage one of your pro-active loss control strategies.