Condo Insurance Claims Soar as Temperatures Plummet

by Tom Schild

As arctic temperatures blanket Maryland and much of the eastern United States, frozen pipe breaks are causing havoc for homeowners.

Typically, the cost of repairing a burst pipe is not covered by property insurance but repair costs for the related water damage to the building is covered.  For condominium owners, there are special challenges in sorting out whether the condo association–or the individual unit owner–pays to repair damage to walls, floors, carpet and other portions of the building.

In Maryland, the Condominium Act requires the condo association to have property insurance for both the common elements and the individual units. Repair costs in excess of the insurance deductible amount will be paid for by the insurance company.

However, who pays the first $5,000 of repair costs depends on whether the broken pipe is a common element or part of the unit.  Under Section 11-114 of  Maryland Condominium Act, the entire insurance deductible amount is paid for by the condo association if the cause of the damage originates in a common element pipe.  But, if the frozen pipe is a unit pipe, the owner of the unit where the cause of the damage occurs must pay up to $5,000 of the repair cost not paid by the insurance company.

The individual unit owner is also responsible for the cost of repairing or replacing any upgrades or additions to the unit–commonly referred to as “betterments and improvements”  in insurance jargon–beyond what was in the unit as originally constructed.

To cover up to $5,000 of the condo association insurance deductible and the cost to repair or replace betterments and improvements, unit owners can obtain their own individual unit insurance known as an HO-6 policy.  This insurance also covers damage to an owner’s furniture and other personal property.   The deductible amount to be paid by the unit owner in individual insurance policies can be as little as $250.

Yet, many condo owners do not have individual HO-6 coverage and are not able to pay the first $5,000 to repair their unit, other units and the common elements when the broken pipe is part of the unit.  This can leave other unit owners or the condo association to make repairs and then seek reimbursement from the owner of the unit where the cause of the damage originated.

To avoid surprises and disputes over payment of the first $5,000 of repair costs, each condominium association is required by the Condo Act to provide annual written notice of the amount of the deductible in the condominium master insurance policy and the unit owner’s responsibility for the property insurance deductible.  Additionally, the condo bylaws can require each unit owner to maintain an individual condominium unit insurance policy.  Existing bylaws can be amended to require unit owner insurance with approval of 51 percent of the unit owners.

Water damage can occur year round.  But, the arctic temperatures of the winter of 2015 will gladly soon be a blast from the past.

POSTED BY: Thomas Schild Law Group, LLC

 

 

Condo Resale Disclosures May Violate Maryland Consumer Protection Act

by Tom Schild

It has been a rough month for Maryland condos.  First, the Maryland Court of Appeals expanded the potential liability for the presence of pit bulls on condo common areas (See May 11 blog post–Beware of Pit Bull).    A few days later, the same court ruled that condos and their management companies may violate the Maryland Consumer Protection Act by issuing a “misleading” resale document in connection with the sale of a condo unit.

The Maryland Court of Appeals–the highest state appellate court–issued its initial opinion in MRA Property Management, Inc. v. Armstrong in October 2011 but withdrew that ruling in December 2011 in response to objections by the unit owners, condominium and management company who were the parties to the litigaiton.  The court issued its new and revised ruling on April 30, 2012.

Unit owners who received the condominium operating budget as part of the resale disclosure package claimed the approved budget was misleading because there was no indication that additional repairs would be required and a special assessment to fund the repairs would be imposed on unit owners  The condominium and management company contended that they had complied with the resale disclosure requirements of the Maryland Condominium Act by providing the operating budget and that the Maryland Consumer Protection Act does not apply to the issuance of condo resale disclosure information.

The appeals court concluded that the Consumer Protection Act does apply to the issuance of resale disclosure certificates and other information even though neither the condominium nor management company is the seller of the condo unit.  The court reasoned that the statutory duty under the Condo Act to provide materials  to prospective buyers injects the condominium and management company into the sales transaction as “central participants” because the sales contract would be unenforceable if they failed to provide the resale disclosure information.  According to the court, the required disclosures “may have been integral to the transactions”.

Therefore, the Consumer Protection Act establishes an independent basis of potential liability by the condo and its manager if the disclosures are “misleading or had the capacity, tendency, or effect of misleading or deceiving”.  The Maryland Condominium Act requires disclosures, while the Consumer Protection Act  mandates that those disclosures not be deceptive.

The appeals court did not rule on whether the operating budgets provided by the condominium and its management company were deceptive in violation of the Consumer Protection Act.  Instead, the court found that they were not necessarily deceptive and sent the matter back to the trial court to determine if they were deceptive or not.  The Court of Appeals left open the possibility that the mere disclosure of the operating budget might be deceptive if additional known information was not also disclosed to prevent the budgets from being misleading.

Additionally, the appellate court did not address whether the condominium has an obligation under the Condominium Act to disclose building conditions that may have been code violations but were never charged as such by a  government agency.  Although the court had addressed that issue in its earlier withdrawn decision, the court’s revised decision concluded that issue was not properly before the court.

 

Maryland Foreclosure Purchaser Must Pay Condo Fees

by Tom Schild

The successful bidder at a foreclosure sale of a condominium unit is not exempt from paying condo fee assessments until legal title is conveyed after a court ratifies the sale, the Maryland Court of Special Appeals ruled on December 1, 2011.

In Campbell v. Bayside Condominium, a Maryland foreclosure sale purchaser challenged the authority of the Condominium to impose a lien for assessments during the interval between the foreclosure sale date and conveyance to the purchaser several months later.  She contended that the Maryland Condominium Act definition of “unit owner” should be applied to mean only those with “legal title” are obligated to pay the condo fees.

Under long-established Maryland law, the purchaser at a foreclosure sale acquires “equitable title” as of the sale date.  After court ratification of the sale and upon conveyance by deed, the purchaser acquires “legal title” retroactive to the foreclosure sale date.  Applying this principle in the context of the purchase of a condominium unit at a foreclosure sale, the Court of Special Appeals concluded that the term “unit owner” in the Condominium Act embraces the holder of equitable title.  Therefore, a foreclosure sale purchaser is liable for payment of assessments from the date of the foreclosure sale.

Maryland Appeals Court Expands Condo Resale Certificate Liability

by Tom Schild

A recent decision of the Maryland Court of Appeals–the highest state appellate court–significantly increases the potential liablity of condominium associations and their managers when issuing resale certficates required by the Maryland Condominium Act. Continue reading