How to handle payment from HOA insurance policy to an owner

One of the units in our 5 units apartment complex sustained water damage due to sewage backup. The owners HO6 policy denied her, however, our apartment complexes master policy covered it. They will be sending our HOA a check soon to cover the damages. The HOA was hoping not to be involved in this, however, since the check is being paid to the HOA, we automatically are.

My goal as an HOA board member is to insure that the money gets spent on fixing the damages while avoiding legal or tax liability, I also want to avoid getting involved with hiring contractors and managing the repair project since the damage is inside a unit and not the common areas.

My plan is to stipulate that the owner hire a licensed contractor, provide invoices for all work performed, that not checks will be paid to owner, only to contactors, that the pay out limit is limited to what the insurance paid the HOA, that not funds will be paid out if claimed damaged area is not repaired, I will also take before and after pictures. Anything else anyone can think of?

I would greatly appreciate any suggestion that would help me in this matter.

PERFECT

unless

Some damage is structural, eg. sewage permeated subfloor, rotted/molding baseboard

Melissa, I wish it could be that simple. I just don't want to leave any room for things to go wrong. I have a feeling that the owner could have caused the damage on purpose, her toilet just randomly cracked and leaked water. A day before the incident, both me and the unit next to her heard loud thumping noises, so I don't fully trust that she will use the money to the benefit of the unit. If she sells the unit which she has said she wants to do soon, the next owner can potentially hold us liable if the repairs aren't done properly. Also, since our HOA is a non-profit, I don't know how the IRS will asses us when a 30K check came into the HOA then was paid to a person who didn't provide any service. Thanks for your input.

5 years ago my former boss, also an attorney, took on an association with a "shady" Board. The Board president had a water heater burst in their unit and filed a claim against the association's insurance. Based on previous experience with this complex, this was NOT a covered item. The Board president didn't have HO-6 insurance.

The association's insurance company paid out $105K for damages, WELL over what they should. Turns out they doesn't do the repairs that the insurance paid for. We believe they pocketed over $70K of association monies in this scam. My boss pushed for the settlement and I dropped the account because of what I later learned. Two other units had filed similar claims and the Board denied the claims and never allowed the insurance to get involved.

This is the association's money form the association's policy, NOT the homeowner's. The homeowner can provide LEGITIMATE invoices for LEGITIMATE work and the association can pay those invoices, NO UPGRADES! Any funds left over are returned to the insurance company.

The association's policy was not renewed the following year and their new policy increased by 70%.

Our HOA Covenants require that each unit (home) carry an "all risk" policy and that the HOA be named co-payee. This is to be ensure one does not run away with any settlement and that they replace/repair their unit to BOD's satisfaction.

Our Covenants also say if one does not carry said insurance, the HOA can obtain such a policy on the unit and bill the unit owner.

Every so often a buyer will say their insurance agent say this is illegal/improper. At that point we have our attorney send a make a call or send a letter explaining whatever. In each case it got done.