1. Property Insurance Land-Use Control

2. Nightly Trivia  Q) What metropolitan area boasts the highest median priced homes?  A) Honolulu, Hawaii with a median home price of $360,000

3. Property Insurance  Fire Insurance  Liability  Policy Types

4. Fire Insurance History  The Romans again – Crassus would quote prices for extinguishing fires or buy the property  Colonial America had fire insurance groups to pay for losses and compensate firefighters

5. Covered Losses  Loss by fire  Loss by lightning  Losses sustained while removing property from an endangered premises  The insured pays an insurance premium to the insurer

6. Other Coverage, Liability  Property can be exposed to many risks (perils)  An endorsement, rider, or attachment is used to modify an insurance policy  Public/personal liability – responsibility one has toward others as a result of one’s actions or failure to take action  Liability exists when there is a legal duty to exercise reasonable care and you fail to do so, resulting in injury to another

7. Homeowner Policies  Contains the coverage considered most useful for a homeowner  Usually cover certain liability and property losses which occur away from the insured’s property  Seven formats – five for single-family homes, one for tenants, and one for condo owners

8. Property Covered  All structures on the lot  Most personal property  Certain valuables may require a rider to be covered  Exclusions:  Flood, land-slide, mud flow, tidal wave, earthquake, underground water, settling, cracking, war, and nuclear accident

9. Perils Covered 1. Fire or lightning 2. Losses sustained while removing property from an endangered premises 3. Windstorm or hail 4. Explosion 5. Riot or civil commotion 6. Aircraft 7. Vehicles 8. Smoke 9. Vandalism and malicious mischief 10. Theft 11. Collapse of building 12. Breakage of glass that is part of the building 13. Falling objects 14. Weight of ice, snow, sleet 15. Steam or hot water damage 16. Water leaks 17. Freezing of utilities 18. Electrical malfunction

10. Policy Types  Basic form – HO-1, covers 1-11  Broad form – HO-2, covers all 18  Comprehensive form – HO-5, all risks policy, covers all perils except those listed in the policy  HO-8, for older homes, insures for cash value, not replacement cost  Special form – HO-3, provides HO-5 coverage on the dwelling and HO-2 coverage on personal property

11. Other Policies  Tenant’s form – HO-4, broad form coverage for personal property and reimbursement of any loss of use of rental property up to 20% of personal property insured  Condominium unit owner’s form – HO-6, personal property and any property not insured by the association’s policy  Coverage A indicates maximum payment for total destruction, inflation guard endorsements are recommended

12. Liability Coverage  Liability policies cover you and all family living with you  Also provides protection away from premises  Medical payments coverage – pays for minor injuries for which you may be liable  Major injuries are included under liability coverage

13. Types of Endorsements  Inflation guard – increase property damage coverage by quarter  Worker’s compensation insurance – covers lost wages for workers injured on your property  Tenant coverage for rental property  Rental property coverage

14. Replacement Calculations  Actual cash value – new price minus accumulated depreciation, old for old  New for old – a policy that replaces a property completely with a new property  Generally a new for old agreement requires 80% coverage of the value

15. Insurance for Loans, Replacement Cost  Fire and extended coverage are usually required  This is to protect the collateral property  Some lenders collect the property insurance at a rate of 1/12 th per month and make payments themselves (remember balanced mortgages?)  Insurance should cover full replacement cost or the total value of the loan  Policies should be reviewed every 1-3 years

16. Flood Insurance  National Flood Insurance Program – 1968  Losses covered:  The overflow of inland or tidal waters  Unusual and rapid accumulation or runoff of surface waters  Mud slides resulting from accumulations of water on or under the ground  Erosion losses caused by abnormal water runoff  All loans involving the federal government require a certificate that the property is not in a flood zone or flood insurance

17. Landlord Insurance  Property damage and liability insurance is important for rental property  Vacant land not used for business will usually be covered under a standard homeowner policy

18. Policy Cancellation  Policyholders can cancel at any time  Refunds on prepaid insurance are computed at short rates somewhat higher than a simple pro rata charge  The insurer must give at least a 5 day notice to the insured before canceling a policy  The refunded premium must be calculated on a pro rata basis

19. Policy Suspension  Policies can be suspended by the insurer if the insured:  Allows hazard exposure to the insurer to increase beyond the risks normally associated with the type of property being insured  The building is left vacant for more than 60 days  Willful misrepresentation at any point will void a policy

20. The Last of Insurance  Insurable interest – a policy does not protect the property, but the insured’s interest in the property  Policy coverage sometimes will be sold with a property to prevent loss of policy value  In new homes builders can usually be held liable for repairs, warranty requirements and availability vary by state

21. Land-Use Control  Zoning  Subdivisions  Environmental concerns  Planning

22. Background  Land-use control – any legal restriction that controls how a parcel of land may be used  Land cannot be regulated such that it renders it totally valueless and any such regulation of one’s private land must bear some “rough proportionality” to the benefit that the regulation gives to the public – U.S. Supreme Court

23. Zoning Laws  First true zoning system was New York City in 1916  Work to divide land into zones to regulate purpose and type of structures  Authority to control land is derived from the basic police power of each state to protect the public health, safety, morals, and general welfare of its citizens

24. Land-Use Components  Zoning ordinance can impose rules beyond land use such as residence types and housing sizes  Zoning is enforced through requirements for building permits  Nonconforming use – the owner can continue to use the structure even though it does not conform to the new zoning, an existing user can be grandfathered in with changes in zoning

25. More Zoning Components  Amendment – change to a zoning ordinance after passing  Variance – allows a landowner to deviate from current zoning requirements  Conditional-use permit – allows a land use that does not conform with existing zoning, provided the use is within the limitations imposed by the permit  Spot zoning – rezoning of a small area of land  Downzoning – rezoning higher-density land for lower-density housing  Taking – government takes control of land with no economic value

26. The Last of Zoning Components  Buffer zone – not an official policy, but generally a strip of land that separates one land use from another  Zoning laws can be appealed and revoked if unclear, discriminatory, or unreasonable  Value in zoning is created by the number of people who want to use a particular parcel of land for a specific purpose

27. Subdivisions  Mapping requirements – compliance with government regulations for utilities and amenities in a subdivision construction  Required for government approval

28. Building Codes  Minimum acceptable standards for construction and renovation of residential and commercial properties  Certificate of occupancy – issued after codes inspection to the building owner to show that the structure meets the code

29. Deed Restrictions  Private land-use controls are deed and lease restrictions  Legally, if a buyer or lessee agrees to the terms, then the terms are binding  Restrictive covenants – purpose of the structure, types of architecture, etc.

30. Planning  Lack of planning results in confusing, unrelated combinations of zoning and land use  A master plan is based on physical and economic surveys of the area being planned for  To ensure long-run continuity, plans should project 15 to 25 years

31. The Environment  Environmental impact statement/environmental impact report (EIS/EIR) – information in one document for a proposed project to allow an impartial party to judge environmental costs and benefits of a project

32. What’s in an EIS?  Description of present conditions at the proposed development sites plus:  The probably impact of the proposed project on the physical, economic, and social environment of the area  Any unavoidable adverse environmental effects  Any alternatives to the proposed projects  The short-term vs long-term effects of the proposed project on the environment  A listing of any irreversible commitment of resources if the project is implemented

33. The Environment and the Law  1982 – the Comprehensive Environmental Response, Compensation, and Liability Act  100% liability for damages resulting from disposal of hazardous substances for:  The owners  The operators  Any person who owned or operated the facility  Any persons who have accepted hazardous substances for transport tot disposal or treatment sites

34. Environmental Site Assessments  Phase I – on-site visual inspection of the property, interviews with owners and area residents, aerial photographs, public records  Phase II – sampling of soil and water for hazardous substances  Phase III – further sampling and establishing limits of the contamination and developing a plan for remedial action and clean up

35. Changing Property Values  Windfall gains – property has been authorized for development  Wipe-outs – landowners are prohibited from developing their land  Transferable development rights – eliminate windfalls and wipe-outs by separating development rights from the land itself