Under the same roof with different insurers

RESPONSE FROM A READER: Regarding your answer to Vie, the reader who did not get any advice from the person who conducted the closing (escrow) on her house:

In the three times I’ve purchased a house in California, along with additional refinances, the escrow papers I’ve been given each time by the escrow company stated in writing that they handle money and all necessary paperwork but do not have any duty to explain any terms.

Second, also being an engineer with a master’s degree, I read through carefully all the terms therein, but an engineer should never think he or she gives the same meaning to words as does the legal profession. That said, my company moved to Georgia a number of years ago and I had a lawyer represent me, the buyer, to review the contracts. I noticed a clause holding me, in perpetuity, responsible for any pollution on the property including what the builder may have covered over.  My attorney told me not to sign, and to delete the clause. Lesson learned. I read your column every week. Knowledge is power. Thankfully with what I’ve learned, I’ve never had to write for advice. – Barry

DEAR BARRY: Thank you for your thoughtful comments. I always find it interesting that people in the residential real estate business often discourage buyers (and sellers) from retaining legal counsel. But you make a compelling case for using a lawyer in real estate transactions.

In most instances, the home (or condo) you are buying will be the most expensive purchase in your life. When you buy a car, you at least kick the tires. Real estate law is complex, since there are so many players – all of whom legitimately are interested in making money. Homebuyers and home sellers should be able to protect themselves and make absolutely sure that they are being treated fairly.

Barry did what all consumers should do: Carefully read every page of every document you will have to sign, and if you do not understand something, ask. If the settlement (escrow) person is not able or willing to explain, check with your attorney. In fact, if at all possible, consumers should be able to review all of the proposed documents at least one day before the final settlement takes place.

DEAR BENNY: I live in a nineteen unit self-managed town house community in northwest suburban Chicago. Documents require all unit owners to carry structure insurance. Three owners have not responded to the recent documentation request, and two owners only carry HO6 coverage for $35,000.  The units are currently worth about $265,000. Would a master insurance policy obtained by the association be a better way to go? We already experienced a problem when units had hail damage and one owner’s carrier refused to cover the damages.  – Karen

DEAR KAREN: There is a difference between a condominium and a town home association. In the former, the unit owner is responsible for everything that happens in his or her unit, but common elements – structure, for example – are the responsibility of the condominium association. And the association is typically required to obtain a master insurance policy that will cover problems such as fire, structural damage, water leaks, etc. In a homeowner’s association, on the other hand, the owner is responsible for structural issues, and as you state, each of you have to obtain your own insurance.

I asked some insurance brokers your question, and they all agree that it makes sense to have everyone insured by one master policy. This way, you don’t have to worry that your neighbor does not have a policy or did not have sufficient coverage.

Karyl Foray, an insurance broker in Illinois, gave me this illustration: “A three-unit town home building (where each owner insured their own unit) suffered hail damage and each insurance company determined something different on what should be done with the roof.  One said complete replacement, one said patch job only, and one said no damage needed to be repaired. Needless to say, you cannot repair a portion of a roof and replace another portion of the roof – you would be voiding any warranty for the replacement areas. The association ended up replacing the roof (out of pocket where necessary) and back charging the unit owners whose insurance wouldn’t pay for a replacement so there would be a warranty. This association is now insured in the condo style to eliminate this problem in the future.”

However, you will have to amend your legal documents to make this change. Talk with your association attorney as to the requirements and the procedure for amending.