Tighter Rules for NYC Co-op Insurance Follow Banking, Mortgage Crisis
The financial meltdown of two years ago caused banks to tighten their requirements for Manhattan co-op insurance — and they want new to buy more coverage to insure any improvements they may make to their homes.
In recent months, banks have begun requiring condo and co-op buyers to purchase insurance coverage for improvements or renovations equal to at least 20 percent of the unit’s fair market value. Buying a condo worth $650,000? You’ll need at least $130,000 in insurance — and that’s over and above what your condo or co-op board might require you to hold in liability insurance. It’s an extra expense, but imagine what you might lose if, say, smoke damage from a fire ruined your home’s interior. We’re talking hundreds of thousands in losses.
The banks are basically following the lead of Fannie Mae and Freddie Mac on this. The federal mortgage lenders suffered huge losses in 2007 and 2008 when the mortgage-backed securities market collapsed; borrower after borrower defaulted on mortgage loans, meaning the lenders could not recover their money. Plenty of private banks ran into the same problem.
Fannie Mae and Freddie Mac began requiring the extra insurance last year, and the private banks fell into line behind them. The insurance helps protect against damage from a fire, windstorm or other unforeseen circumstance that could wipe out a homeowner financially. The bank has an incentive to keep their clients solvent and paying their mortgages.
Just a few years ago, banks didn’t care whether individual units in a condo or co-op building were insured; they generally assumed a building’s master policy would protect their interest. But that’s no longer true, especially in New York City, where 99 times out of 100, individual condo or co-op owners are responsible for covering their homes’ interiors.
Gotham Brokerage Co., Inc. knows about all the insurance issues you have to worry about in New York City, where you face insurance challenges you just don’t see anywhere else. We’ve served the five boroughs for more than 50 years.
Fill out our quote request form or give us a call at the number above to learn more about how we can help properly insure your new condo or co-op.
Barry Frost, Vice President, Gotham Brokerage Co. Inc.
