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September 2, 2010 |
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| February 18, 2010 |
By: Paola Iuspa-Abbott |
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arla Gemmati’s condo association quit paying for windstorm insurance for the 17-building complex she lives in so her mortgage lender started charging her for the policy, increasing her mortgage payments to more than $1,400 a month, up from $975.
Last month, she couldn’t afford the payment and fears she may end up losing her condo at Lake Pointe in Oakland Park.
“Right now, I cannot pay my mortgage,” she said. “I can’t do it. The association cannot afford the windstorm but I can’t afford my mortgage, which means I can be [pushed] into a bank foreclosure.”
She filed suit alleging that the association violated state law and its own governing documents by failing to renew its insurance policy. She claims the action has put her and other owners at risk of foreclosure.
Embattled condo associations facing a cash crunch amid foreclosures and late payment of association fees have been cutting services to make ends meet. But with little left to cut as the economic crisis deepens, many are cutting essentials such as property insurance coverage, which condo lawyers argue is a violation of state law.
The ramifications to owners can be severe, including huge charges from lenders for flood and windstorm coverage.
Gemmati says her only salvation would be for the cash-strapped Lake Pointe Owners Association to once again buy a windstorm policy. The association had been spending $90,000 a year on its windstorm insurance.
Banks typically “force place” insurance coverage under the terms of their loan agreements if a homeowner or condo association fails to carry the required insurance coverage. In her case, Bank of America imposed a $4,515-a-year charge on her for windstorm coverage she cannot afford.
Gemmati’s Feb. 9 suit is asking Broward County Court Judge Steven Shutter to force the association to purchase coverage for the complex. Community association attorney Robert Kaye, managing member at Kaye & Bender in Pompano Beach, is representing Gemmati, who works as a collection specialist in his law firm.
Gemmati is also seeking to recover money spent on the Bank of America premium and legal fees.
Increasingly condo associations across South Florida are cutting expenses to adopt to shrinking revenues, caused by a growing number of delinquent owners.
But Gemmati’s legal battle may be short.
Bob Mandell, property manager for the Lake Pointe condominium, said Wednesday that the association is in the process of buying the windstorm policy. The cost is estimated at between $90,000 and $110,000, he said.
“Other people have had similar problems, and we are getting a lot of pressure from different banks,” said Mandell, who works for Phoenix Management in Margate. “We can’t take the pressure any more. We saved money for five months, but it’s time to throw in the towel. We can’t put people at this kind of risk.”
Mandell said his management company decided to let the policy expire in September because the association didn’t have the money to renew it.
He also said the board had become frustrated with paying for windstorm insurance after it spent $500,000 to repair damage caused by Hurricane Wilma. It only recovered about $75 from the insurer because of the high deductible, which was 5 percent of the value of the property.
Community association lawyers said sacrificing insurance coverage is one of the worst things a board can do.
Not having proper insurance exposes owners to paying for costly structural damage and potentially puts them in default of their mortgage insurance requirement, said Miami attorney I. Barry Blaxberg, a partner with Blaxberg Grayson & Kukoff.
“It is a terrible choice to go bare, without insurance,” he said. “They are really causing a mountain of trouble for the unit owners and the association. It is a pretty bad way to go.”
If the Lake Pointe condo association doesn’t get windstorm insurance soon, chances are more owners won’t be able to afford their mortgages and will face foreclosure, further hurting the financial health of the association, Blaxberg said.
When a bank forces insurance on a borrower, the cost to the owner is much higher than the premium paid by the association. And yet, the policy doesn’t protect the borrower’s interest on the property.
“It only covers the bank interest on the mortgage,” Blaxberg said. “And the cost to the owner is prohibitive. It is a big mistake to allow that to happen as opposed to … [assessing] the unit owners for their portion of would have cost to [buy] a windstorm policy.”
Paola Iuspa-Abbott can be reached at (305) 347-6657.
Carla Gemmati photo by Melanie Bell
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