self insured condos

Caveat Emptor!!!
First ask: Are they self insured because they don't want to afford the premium, or because they are uninsurable? If they are uninsurable, walk away. If they are self insured, they typically are not paying for the portion of coverage they are self insuring (usually windstorm coverage), but will likely have some hazard and business liability coverage. If they don't have that, don't even think about it, walk away.

Self insured condominiums do not meet FNMA requirements, so you will be limited to local bank financing. Since the local bank will hold the note (and have a balloon in 5 years), they can add whatever requirements they think are necessary. However, I have not seen what the realtor described. Think about it... if you are the only unit with windstorm coverage (say... on the second floor), do you think they will pay to rebuild your unit if the entire building is destroyed and no one else has windstorm coverage? Have the realtor drive you to see some of the skeletons of homes that have not been rebuilt since the last hurricane because of not having windstorm coverage.

Even though the association may argue that the buildings have withstood every hurricane since they were constructed, make sure you see that the association is actually holding reserves for windstorm damage, or you are actually uninsured, not self insured. I would think they would have an excess of the amount they have had in damages for windstorm from the last/most damaging hurricane. Don't let them tell you it will be recovered by 'special assessment' in the event of windstorm damage... that could be the entire cost of rebuilding.

There are plenty of condos that carry the FNMA required amount of insurance. If you are paying cash, and the buildings are not likely to have serious damage in a hurricane, maybe it is a risk worth taking... otherwise I would be REAL careful.

As somepone who's pretty conservativewhen it comes to finances, I'd be very, very nervous about buying into any condo complex that is self-insured.

I was the President of my condo association for the last three years we lived there, and want to second what Island Ed recommends. Before buying any condo, you really need to look over their financial info and schedule for replacing infrastructure in thye common areas of the complex to ensure that there are enough reserves on hand to cover the regular upkeep plus something extra to cover the unforeseen. I've seen a lot of people buy units that had suspiciously low monthly fees get nailed with special assessments -- some that were as high as $10k -- shortly after taking ownership, and at least one assessment was made to beef up the reserves after the board discovered financial mismanagement that occurred 10 years before the current board even owned their condos!

After an offer on a condo in Virginia is accepted, the prospective buyers had three days to review the bylaws and financial statements of the owners association, during which time they could retract their offer with no penalties. I'm not sure if that same law applies in the USVI, but am certain this board's resident real estate guru Alexandra can provide that info and a lot of insight about the pros and cons of purchasing self-insured condos.

The boards of condo associations have a lot of power over your pocketbook, so it's in the best interest of every condo owner to pay close attention to how the board handles the finances and other business of the association. The time you invest may just save you from the shock of being handed a "special assessment" for thousands of dollars that are due with your next monthly payment.

--HC

If you think about it, an individual condo unit is in a building owned in common by a number of others who likewise have condos in the complex. It is dangerous for an individual condo owner to assume that if/when tragedy strikes all condo owners will pony-up for a special assessment. More likely, too few owners will have the necessary reserves and the structure will languish in a damaged state, deteriorating for several years until the courts become involved, at which point the investment has become worthless.

We own our small, masonry home and periodically toy with the idea of self-insuring but still have insurance at a cost of $1000/month. If I owned property in common with numerous other folks, like a condo, I would insist that the complex require each condo owner to furnish annual proof that they carry a minimum amount of third-party insurance. Otherwise, as Island Ed points out, it is unlikely that my insurance firm would repair someone else's lower unit on which my upper unit rests and nobody would accept fiscal responsibility for repairing the common areas.

wow...this an interesting and important topic.

My first contact with St Croix was in 1990..yeh the year after hurricane Yugo.(1989) Actually before I came here, I lived near Santa Cruz, California... that year...oh yes we lived about three miles from the "epicenter' of the Loma Prieta earthquake. It was a very interesting year.

This has given us a unique perspective on insurance and risk.

One well known St Croix resident who is a business man and long time homeowner told me, "it's all about roofs" ..."I have a tough house... the roof blows off and I replace it. "I don't pay for wind insurance and spend my savings putting a new roof on my house...I have done it twice". He has been here about 30 years.

I am more inclined to try to get an insurance company to cover...wind, flood, water...you know.

BUT... we have seen how the insurance companies have "scr..d" the residents of New Orleans.

We once trusted that our insurance companies would protect us in times of crises. That has not always happened in recent times.
Our current government (the guys in Washington DC) shows that it is no better...maybe worse.
"
What to do? "Cover yourself but do not always depend on insurance companies or the government to do it...

I agree Stxer, it may be about roofs, but as you know a condo changes that equation drastically. Do the numbers for a single family residence, and maybe you will save in insurance costs what the roof and other damages would be over a period of time... and then maybe not.

I know of several islanders who took their insurance checks from the 95 hurricane, and bought damaged property (i.e., oceanside villas) that was abandoned by uninsured owners. Over a number of years, they fixed up the roof on both properties while living on one or two rooms, and eventually have finished repairing the insides as well. Now they have a free and clear villa providing tens of thousands in income per year, and discreetly go about their lives as... well I can't say as they don't want anyone to know.

The USVI does not have a law in place automatically allowing you a time period to examine HOA documents with the right to walk away from a sale. HOWEVER... every purchase and sale agreement involving a condo or a house in an HOA should include a time period for that purpose as a contingency. When writing an Offer to Purchase for a buyer, I typically include wording that requires that a seller to provide the buyer with copies of the HOA documents within five days of mutual acceptance and then allowing the buyer a few days to review the rules to determine if the property will be suitable for his/her purposes. If the seller does not provide the documents in the required time-frame, you would have legal right to extend your option to walk away to the specified time period after they are provided.

Self-insurance of properties is not for the faint of heart and is not for anyone who is not financially secure in a big way. If it wouldn't hurt you to lose the value of the property in question, then self-insuring for windstorm might be of interest to you. This can be for a house or a condo. If losing your home would wipe you out beyond your ability to recover, you should not self-insure.

Some condo complexes that self-insure for windstorm can be purchased with local bank loans and the bank will "force place insurance". This doesn't necessarily protect your equity, but it protects the bank from loss of the loan value in case of destruction of the property. This is kind of like private mortgage insurance (PMI), which would pay the bank back the value of the loan if you defaulted but would not refund to you your equity in a property.

The forced insurance might be for enough of a value to cover your percentage of rebuilding the property if your condo association does have a solid plan in place to bill the owners for rebuilding in the event of a partial destruction of the property. In this instance, you would get your condo back and the loan would continue as usual. All HOA's are not created equal and the rules each has in place for what happens when various hazards strike are different from complex to complex. The wise buyer will take the time to read the HOA's documents for a property he likes to be certain he knows what he's getting into.

The benefit of self-insuring is that it saves you money on a monthly basis, often a very significant amount. You are playing the odds and hoping that a hurricane like Hugo doesn't come along to wipe out your asset beyond the ability to rebuild it. If you have forced insurance, you are not saving the monthly dollars, so you are better off buying a property that already has full insurance. This way you don't risk the possibility that other owners won't be able to pay for their part of the rebuild should one be necessary. If you are independently wealthy and plan to pay cash for your condo, you may be able to find a self-insured complex that you really like. It is up to you if you are willing to take the risk.