Buying Condominium Damage Financial Insurance

Hot Deal on Fire-Damaged Condo!


L.S. from Fairfield County writes:

Dear Mister Condo,

Hi! I am thinking about purchasing a condo with known fire damage which was caused by the resident living above the unit. No repairs have been done to the building yet so I am very hesitant as I am really not familiar with the process. Here are my questions:

  1. Who is responsible for the repair knowing that the damage was not caused by the previous owner?
  2. If it is under the condominium insurance coverage, will they cover all the walls and structures or simply the exterior structure of the building?
  3. Since I don’t believe the previous owner or the bank had kept up with their common fee, how does that work? Will it still be cover by the condominium insurance?
  4. I would imagine they would not leave a section of the building not fixed, right?

Sorry for all those impossible questions and thank you in advance.

Mister Condo replies:

L.S., no need to apologize for those questions. They are all good and you are wise to seek answers BEFORE you purchase. The purchase of a damaged condo unit is similar to the purchase of a new construction unit in that you should have a new unit once the construction process is complete. However, fire damage carries some other risk factors that you would be wise to consider before the purchase. First and foremost is safety. You should insist on a safety inspection from the local building authority (usually a city inspector) before you agree to purchase the unit. Just because the esoteric surfaces like floors, doors, and windows are new you want peace of mind in knowing that all of the unseen structures subfloor, walls, roof, etc. are structurally sound and have been inspected.

Typically, the association insurance would cover the basic repair of a fire-damaged unit. However, not all policies are the same and not all events are covered. If improvements were made to the unit and the policy was written to only cover originally installed materials, you may find the association only rebuilds to the original specifications. That could mean downgraded flooring materials, basic cabinets, and such. Ask how the association plans on rebuilding the unit and ask how it will be paid for. If the entire job is being paid for from insurance proceeds, you may be good to go. If the association is suing the upstairs unit owner for the monies to repair the unit, a long legal battle may ensue. If that is the case, I would suggest you take a pass on the unit until the lawsuit is settled and the funds are in place to repair the unit.

If the previous owner of the unit did not keep current with the common fees as you think, there is a process by which the association will collect as much of the uncollected fees as possible. The Connecticut law that was on the books at the time would allow for the association to collect up to six months of uncollected fees and reasonable legal expenses at the time of closing through a super lien. That means the seller would have those funds deducted from the proceeds of the sale before anyone else was paid. The new unit owner becomes responsible for new fees from the date of sale moving forward but has no obligation to pay for previously assessed fees. The new law in Connecticut will allow associations to renew their claim to uncollected fees on a renewable basis so that their super lien includes all uncollected common fees and legal expenses. That is still on the previous owner; not the new owner. Either way, uncollected common fees are not covered by insurance.

You asked “I would imagine they would not leave a section of the building not fixed, right?” I would imagine the last thing they would want to do is leave a section of the building unfixed. It is an eyesore and hurts property values of the entire community. However, if the community did not have adequate insurance coverage or the negligent owner were unable to pay for the damage caused that was not insured, it is possible that the association could wait until the lawsuits are settled before reconstruction began. If the community did not have enough financial reserve to fund the project in the short term, it is entirely possible that this section of building could remain unrepaired for quite some time. For that reason alone, you need to exercise extreme caution before purchasing this fire-damaged unit. If you are working with a realtor, I would have them get as many of these answers for you as possible. I would also hire an attorney to guide me through the process from offer to closing to protect my interests. If all looks good and you know the risks and still wish to purchase this fire-damaged unit I wish you all the best. If the deal gets dicey, I have no problem suggesting you look for another unit. Good luck!

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