A "planned unit development" (PUD) is a relatively recent concept in housing designed to produce a high density of dwellings and maximum utilization of open spaces. This efficient use of land allows greater flexibility in the best utilization of land for the collective benefit of residential and commercial dwellers.

PUD's are characterized by clustered buildings, common open spaces, mixed land uses and building types. But, in fact, it is the "common areas" that is essential to and identifies the development as a "PUD." The PUD concept is really an "overlay" zoning which enables a developer to obtain a higher density (and sometimes a mixed-use) than is permitted by the underlying zoning. Because the buildings are usually clustered together, there is more green area left open for parks and recreational facilities.

Though similar in some respects, a PUD is quite different from a condominium. In a PUD, the unit is a lot, there is no direct interest in the common areas, the community association is in corporate form, and the PUD is created by covenants in the deed or master lease. In a condominium, the unit is a space of air, there is a percentage of ownership interest in the common areas, the association of owners is usually unincorporated, and the condominium is created by recording a declaration pursuant to state condominium laws. PUD's are also used in resort housing and even shopping projects.

The creation of a PUD is based upon:

• The recording of a plat of subdivision lineating and identifying the following:
  
  
  • Building lots or individual homesites.
  • Common areas.
  • Property transferred to cities, counties or other public agencies.
  • Any other parcels, such as a church site or shopping center, to be kept by the developer or transferred its others.
    
    
• The recording of a declaration of easements, covenants, conditions, restrictions and liens, providing among other things:
  
  
  • Restrictions as to the building lots, homesites, and common areas.
  • Easements affecting the building lots or homesites, and the common areas.
  • Party walls located on the dividing walls of building lots or homesite.
  • Right of the home association to levy assessments on the homeowner for maintenance of the common areas.
  • Priority, if any, of the lien of the assessments.
  • Creation of covenants that may impose personal liability on future landowners.
  • Membership of the home association, that is, who the members are to be in the homeowners association created for a PUD.
  • Right of first refusal.
  • Agreement that not later than a set date the developer will convey the common areas to the homeowners association.
  
  
• The contemporaneous legal establishment of a homeowners association, which is to be vested with the control of the common areas.
  A homeowners association is a nonprofit corporation operating under documents through which (1) each homeowner is automatically a member, with voting rights usually allocated at one vote per family unit, and (2) each homesite is automatically subject to a charge for a proportionate share of the expenses for the homeowners association's activities. Among the services a homeowners association may undertake, are: common property maintenance, outdoor lighting, street maintenance, furnishing water, tree pruning, garbage and trash collection, private policing, and exterior maintenance of individual home properties.
  
  
• Statutory provisions, if any, imposed by law in relation to PUD's.

When insuring a lot or unit in a Planned Unit Development it is necessary to ascertain:

• The valid creation of the PUD.
• Whether the local statutes contain any regulatory provisions and if so, whether they have been complied with.
• Whether all the assessments due and payable have been paid for.
• Whether the declaration contains any right of first refusal.
• Whether all the appropriate exceptions pertaining to the PUD have been shown in the commitment and policy.

The coverage of the PUD Endorsement is affirmative in nature and may not be given unless the facts of the case justify it. The underwriting of each of the risks insured by the endorsement should be based upon the thorough examination of the recorded plat of subdivision, a recent certificate of survey, the declaration of restrictions, easement, etc., and the home association documentation, all in conjunction with the local statutes, practices and procedures.

It needs to be noted that the endorsement does not provide insurance as to the status of title to any land owned by the homeowner's association. Since neither a deed or mortgage on an individual unit affects the title to any ?common area?, any request to extend the coverage of the policy to such land should be denied.

Examination Guidelines:

• Restrictive Covenants
  
  Restrictions must not contain any provisions which will cause a forfeiture of title. There must be no violations of the restrictive covenants.
  
  
• Possible Priority of the Homeowners Association
  
  Documents must provide for a complete priority of the lien of the insured mortgage. Confirm that any homeowners association lien is subordinated to insured lien.
  
  
• Encroachments
  
  There must not be any encroachments by an existing structure (other than a boundary wall or fence) onto adjoining land or onto any easements.
  
  
• First Right of Refusal
  
  Documents must contain no right of first refusal. If they do contain such a right, proper waivers must have been obtained prior to the closing.