The flooding in Iowa is too almost Biblical proportions. We are so tired of rain, rivers overflowing their banks and dams breaking, that the idea of buying a boat and moving north to a lake is looking pretty attractive to most of us. So what are Iowans with flood damage supposed to do when insurance companies tell them there is no coverage? The answers may surprise you when you find out this is going to turn into an expensive lesson for many people.

I haven't had such a case in my office so I'm not sure of the exact issues, but some questions come to mind. Is a dam breaking a flood or is it a man-made catastrophe of another kind that is covered under most homeowner’s policies? And what about if the levee breaks; will that be covered?  I understand a river coming over the banks is probably water damage by flood, but a dam or levee breaking? Seems like a different animal to me. In these two instances you have a man-mad failure as opposed to a weather condition. Is one a flood and the other a casualty?

Damage Often Needs Separate Coverage From National Program, August 13, 2010

There are so many questions coming to mind that I’m not sure where exactly to begin. But let us start asking and I'm sure the right place to begin will come up.

Another question that comes to mind has to do with county value assessments for homes surrounding lakes that own a private dam. There are two aspects to this question. First after you home is destroyed by a flood you need to challenge the tax assessment. Second, there is a long-term question to think about. Should homes below a dam be assessed at a lower rate because of increasing risks associated with dam breaks? Will people looking to buy lake homes avoid those below the dam? Should realtors have some duty to warn home buyers when the home is down from a dam or lake? If you own a home near a dam you might want to read the state dam report to see its condition and then use the disrepair argument as a basis to lower your assessed value with the county; that translates in lower real estate taxes.

Of course you can't have your cake and eat it too, because when you sell you'll need to consider disclosing the prospective purchaser. This is all about two things: honesty and doing due diligence when purchasing real estate.  In the case of real estate ownership ignorance is not forever blissful.

When it comes to nature is it still true that Mother Knows Best

Being a lawyer is like living in a totally different world than most people live. After attending a law school you think differently about the world. Your brain get's fat, and then ignorance of the law is like a pair of pants you can never wear again. While we don’t know everything there is to know about the law we know enough to start asking questions that eventually leads to the right answer. Of course you may not like the answer, but our minds are trained to at least ask the right questions. A law school graduate’s view of the world is structured around rules, regulations, duties and breaches of duties. We see the world’s order or intended orderin most every situation. My mother was fond of saying ignorance is bliss. Not so with real estate ownership.

Whether they realize it or not there is big trouble coming for many HOA boards.

ASDSO – Association of State Dam Safety Officials

In the case of Iowans, when there is a flood, the homeowners are being told by their insurance company they are SOL. Stated simply some of your damages aren't covered under normal homeowner policies. But is the Delhi Dam breaking really a flood? You may think that is an odd question, but with the doors to the dam being damaged and I believe two doors not being opened that is a system or management failure and not a weather related cause. Do you start analyzing from the damage back or from the cause forward?

IF THE ARGUMENT DOESN'T WORK WHO WILL GET SUED?

Will homeowners have little choice, but to sue their homeowner association (HOA) because they were in charge of repairing and maintaining the dam? Will those sitting on the board be sued? Should Iowan’s sitting on HOA boards carry large liability policies for errors and omissions? If you’re on a HOA and sit on the board you should seek legal advice and a review of the insurance coverage the HOA has purchased. The HOA should pay for board members to seek a legal opinion. After all it will be the owners with damage that benefit from any E&O related insurance claim. These could end up being friendly lawsuits.

Most people serving on condominium, townhouse and other HOA boards are ignorant of the liability they assume when sitting on the board. For many people the power trip is great, but when it's SHTF time (shit hits the fan) you can be placed in a position of being sued for not protecting those you are responsible to protect.

Remember that waste ponds are dams – Just ask Iowa Beef Processors

Barbara and I recently evaluated purchasing condominiums associated with our children attending graduate schools.  In looking at the condominium market I was shocked to see how many associations are underfunded with paid-up reserves not showing up on the balance sheet. Current owners discuss this as if it were a positive. It isn't a positive; it's a negative. Every day a person lives in a complex they need to be paying into reserve funds for future repairs associated with current wear and tear. Buying a condo isn't supposed to be a free ride for financially irresponsible owners. There are building systems requiring repairs and eventual replacement. Building systems depreciate, wear out, break or are destroyed by casualties. Insurance doesn’t cover the first three; only the last, casualty. So HOA’s need to be setting money aside in separate accounts called reserves that cover things like roof repairs, heaters and AC units that will surely need replacement or major repair work, siding repair and replacement along with concrete work in the parking lots and sidewalks. If money isn’t set aside major repairs will force a special assessment that can lead to lawsuits against those in charge of the HOA. Why a lawsuit? Because if a special assessment is made because there are no reserves, the board has let those who bought and sold get away Scott free and those who are paying for past wear and tear are paying for the previous owners’ use.  In such a situation current owners are subsidizing the previous owners’ living expense. (Get it? You paid the previous owner too much when you bought.) So be forewarned that special assessments can lead to lawsuits against the HOA board for breach of fiduciary duties.

When the board gets sued you can bet the homeowners will look at the books to see how the board has spent the money entrusted to them. And if money has been wasted, like paying friends to do unnecessary work, you may be personally liable.  This is no joking matter and nothing for amateur HOA board members to get a big head when appointed and not educate them about what is involved. Today’s power trip may turn into tomorrow’s trip to the bankruptcy lawyer.

And you homeowners should not sleep well knowing you're paying low monthly dues. That's a time bomb waiting to blow up in the board's face. Be forewarned that low monthly dues, a lack of reserves on the balance sheet and the board ignoring these issues are signs that you’re playing a game of musical chairs or pass the hot potato. Low monthly dues are a symptom of irresponsible board management. Low monthly dues sooner or later lead to large assessments or loans to cover present costs of repair. Loans or borrowing funds to make repairs are just another way to pass the buck.  Special assessments could mean lower selling prices. Low monthly dues should be a red flag that reserves are too low and should translate into lower values not a higher buying price. That's because low reseerves can blow up in your face, causing unwanted and unexpected expense for the condo owner.

When you go to buy into an association ask for the balance sheet along with the profit and loss or income and expense statements from the previous year. Do you see reserves set up and in amounts that reflect the age of the building and its systems? You’d better or you better hope the music doesn’t stop during the time you own the property. Purchase prices need to reflect balance sheet reserves or the lack thereof. The price you are willing to pay for a condo should have some relationship to the size of the reserves and the age of the structure.

I see people believing that low monthly dues are a reason to pay a higher purchase price; when in fact the exact opposite is true. In other words don’t think paying low monthly dues is a good thing and then agree to pay a higher price for the condominium or townhouse. You should pay less, not more. Before purchasing a condo or townhouse ask to see the balance sheet to know what the reserve accounts show. No reserves or low reserves? Then consider looking elsewhere! Those may be the sign of a poorly run HOA.

And those of you sitting on the boards need to review the E&O insurance coverage before saying, “I do, and swear me in!” That board seat may be set on a trap door.  In the case of Lake Delhi, Iowa dams require specific knowledge of an engineer to know whether it is operating in a safe condition. The HOA board requires serious study on your part.

There are a myriad of issues in running a HOA that I can’t cover in this article, but consider how a resident cooking meth in their unit can be dealt with effectively. Not dealing with them can cause loss of life and enormous property damage. If that happens you can bet the board, assuming they are on notice, will be sued for failing to act accordingly.

So we are right back to the world according to Dolly and in this instance ignorance is not bliss. Sorry Mom!

For a list of articles about Iowa’s dam problems follow this link to the ASDSA site.

• Dam Safety 101
• Dam Safety in the United States of America
• Dam Safety in Iowa
• Iowa Dam Facts: Did you know in Iowa the state regulates 3,325 dams? Did you know that 83 dams are designated as high hazard potentials, 193 for significant hazard potential and 3,049 for low hazard potentials? In 2008 the total budget for this office was a mere $20,000.
• To read the National Dam Safety Program report for Iowa follow this link on the Lombardi Law Firm website.
• For additional reading consider: Why was Pella’s public swimming pool facility allowed to stay open after dark when it was in violation of Iowa’s laws involving lighting for night swim operation?
• The recent drowning of two boys at the City of Pella public swimming pool should make you wonder if government should be providing these types of services and if private enterprise is better suited to spread the risks associated with running it improperly. We provide a summary link to legal rules or the laws allowing the avoidance of responsibility for running a dysfunctional swimming pool program.
• Are Iowa’s bridges a time bomb waiting to explode or collapse?
• Do you ever wonder about the safety of driving over a bridge in Iowa? If you knew the state of disrepair of our infrastructure it might scare you into demanding they do something; especially when state officials waste state resources rather than commit those resources to repairs, replacement and maintenance.