Sorting out condo insurance mess

Don't get stuck paying for damage caused by neighbor negligence

By Inman News Feed
Add Comment Add Comment | Comments: 1 | Posted Jan. 12, 2011

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Don't get stuck paying for damage caused by neighbor negligence

Benny Kass
Inman News™

DEAR BENNY: I live in a condominium. My neighbor's washing machine drain hose became loose, and the leaking water caused damage to my unit. There are conflicting clauses in our legal documents. One says that a unit that causes damage to another unit or to a common area is responsible for fixing it. Another clause says that subrogation shall be waived if both units have insurance.

Because of the second clause, my neighbor's insurance will not accept liability. It looks like I will have to sue my neighbor for the deductible and other out-of-pocket costs. I am assuming breach of duty. The hose could have been secured. Do I have a good small claims case? --John

DEAR JOHN: First, I cannot provide specific legal advice in this column; you should discuss your situation with your own lawyer. Second, whenever I get involved with insurance matters -- especially relating to community association -- I always seek advice from insurance professionals.

Was the master insurance policy for the entire association advised of the damage? It seems to me that the master should be responsible, specifically to reimburse you for the damage to your unit. Typically, the master policy will cover damage to walls and floors, but will not cover what is known as "betterments" -- new things added to the original unit, such as a new kitchen or parquet flooring. And typically also, the deductible will be a common expense, paid for by all owners.

I assume from your question that your insurance policy paid for your damage, and it is your deductible that you want your neighbor to pay. I do know that the law in some states does not allow the insured to sue for the deductible, but this is something your attorney can tell you.

However, there's a good lesson here: Every condominium owner should have insurance coverage for problems that occur inside the unit. The insurance industry calls it an HO-6 policy, and the relatively nominal cost may be well worth it in the long run.

One more suggestion: Washing machine hoses are notorious for causing leaks. Many associations require their owners to install heavy-duty, stainless-steel braided hoses, often called "burst proof." If the unit owner cannot prove that these hoses have been installed, the condo board is authorized to fine the owner on a daily basis until the installation is made. Suggest this to your board of directors.

DEAR BENNY: Five years ago I purchased a house when the market was up. My plan was to sell it to my daughter after one year. I paid $320,000 for the house and it is now worth $170,000. My daughter couldn't get a loan now for $320,000 because the house is worth only $170,000.

A friend of a friend wrote up the loan papers and arranged the loan and HELOC. It was about six months after everything closed that I got a letter from the loan company and realized I had an interest-only loan. I had never heard of that type loan and the man that arranged the loans never once told me what type loan it was.

I am 62 years old and a two-time cancer survivor. I would really like to figure out some way of getting out from under the stress of this house. I know there are millions of people in similar situations. I have paid the loans, never been late, but can't continue this way.

I have a renter who would like to buy the house but she can't afford $320,000 either. What can I do? --Sue

DEAR SUE: I suggest you immediately get an attorney in your area to review all of the loan documents that you obtained when you bought the house. If you cannot afford an attorney, local bar associations have programs where lawyers will volunteer their time to assist on such matters. Also, your local AARP may have a legal services program.

It may be that your lender has violated some lending requirements. You indicate that you were not aware of the terms and conditions of the loan; this may be a Truth in Lending (called TILA) violation or a Real Estate Settlement Procedures Act (known as RESPA) violation, or both. Lenders are required to provide you with a Good Faith Estimate of closing costs, as well as a TILA statement before closing the loan. This would have disclosed the interest-only feature of your loan.

Additionally, there are federal and state programs now in place to assist homeowners who are underwater. You should contact your state and federal legislative representatives for more information.

Finally, you should contact your lender to explain the situation. Tell them that you cannot continue to make payments on the loan, and unless they agree to modify it to a fixed 30-year loan at the current low interest rates, you may have to go into default.

I would talk with your lender immediately, as interest rates are starting to creep up.

I hope this has taught you (and my readers) a valuable lesson. You relied on a friend to assist you -- some friend! Before you sign any documents relating to real estate -- whether that be a real estate sales contract or any loan documents -- please make sure that you read them carefully. If you don't understand anything, get advice from professionals.

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1. Sean Mooney said... on Apr 24, 2014 at 03:37PM

“The title just about says it all - condo claims like these are always a mess. Who's fault is it and who is responsible? My recomendation is: always assume that your neighbor has no insurance and the master policy will never kick in unless the whole building is destroyed. This way, you carry enough coverage on your own policy to cover all damage. The only way John can win in court against his neighbor is to prove that there was negligence (i.e. this was an ongoing problem that occurred multiple times and was never addressed.) Outside of that, you probably won't win because the burden of proof would be on you. My other recommendation for any person who resides in a condo is to always add on water / sewer backup coverage to their policy. When you have multiple units sharing the same water and sewer lines it is very common for backup issues to occur. And if all of these fail I suggest living on the top floor of a building and let gravity protect you.”

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