Condominium and homeowner association memberships provide care-free maintenance of common ground areas. On the surface, association membership allows the homeowner to rid himself of headaches associated with owning property. However, the cost of ownership doesn't begin and end with mortgage payments and association dues. Lurking on the edge of every content condo owner's periphery is the dreaded special assessment fee, which owners are obligated to pay, regardless of the amount. Fortunately, there is special assessment insurance to defray unexpected assessment bills.
A special assessment is a fee approved by a condominium board or homeowners association and passed along to all community homeowners. The fee covers issues not previously included in the budget or regular membership dues -- from basic building repairs and improvements, to large-scale rebuilding after a natural disaster. Condominium associations are required to set aside money in a "reserve fund" to cover regular maintenance costs, but if there are insufficient funds available, each unit owner is obligated to contribute financially.
Special Assessment Insurance
Condominium unit owners can protect themselves from unexpected assessment fees by purchasing "special assessment insurance" or "title insurance." Title insurance protects property against an assortment of events, including special assessments not previously disclosed in the property documents provided at the time of purchase. Special assessment insurance is available to both new and existing homeowners.
Cost of Special Assessment Insurance
Special assessment insurance involves a one-time premium and remains in place the length of ownership. The amount of the premium is determined based on property value, and additional coverage can be purchased if needed. Condo owners frequently have a loss-assessment rider covering up to $1,000. However, for as little as $25 to $35 additional (annually), coverage can be increased to $10,000, $50,000 or more.
How Much Should You Have?
Special assessment insurance is a vital form of protection against unforeseen fees, but what if your coverage is inadequate? Prior to purchasing special assessment insurance, determine how much you'll need by having an attorney review the condominium's financial documents, specifically its status certificate. This certificate details how much the association has in its reserve fund, general financial health and lists any planned maintenance, improvements or repairs.
Avoid purchasing unecessarily large amounts of special assessment insurance by purchasing newly developed property. New construction is less likely to require unexpected maintenance, and if there is a need for repairs, they are usually the responsibility of the developer. Spend some time chatting with existing owners in the community to determine if there has been talk of upcoming costs not included in the status certificate. Request the previous year's association meeting minutes to discover any undisclosed fees on the horizon.
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