Orange County, CA – Condominium insurance requirements? Homeowners rarely consider the insurance coverage that is offered by the Home Owners Association. Most just assume that their unit is covered. After all, they’re making the monthly HOA payment. Did you know that Fannie Mae and HUD have specific condominium insurance requirements that an HOA must maintain? If the HOA does not have sufficient coverage then a traditional loan may not be obtained.
Here are the basic condominium insurance requirements:
1. Master Hazard Policy – The master hazard policy protects the building and project improvements. The policy must cover 100% of the insurable replacement cost of the improvements including the individual units. It’s very important that the policy lists the number of condominium units that are covered. This unit total must agree with the number of units listed by the appraiser on his report.
2. Liability – Liability is the condominium insurance requirement that protects the association from slip & falls and other “at-fault” accidents. The home owners association must maintain a commercial general policy for the entire project. This includes all common areas and elements, public ways, and any other areas that are under it supervision. The insurance should also cover commercial spaces that are owned by the owners’ association.
3. Fidelity – Does the condominium project have more than 20 units? If so, then the HOA will need to maintain Fidelity insurance.
What is fidelity insurance and why is it required you ask? Freddie Mac describes it this way, “The condominium owners association must carry fidelity insurance covering losses resulting from dishonest or fraudulent acts committed by the association’s directors, managers, trustees, employees or volunteers who manage the funds collected and held for the benefit of the condominium unit owners.”
4. Flood Insurance – If the property is located within a flood zone designated by FEMA then the property owner must follow FEMA’s guidelines below. If not, we need to review on a case by case basis to give exceptions. To search FEMA’s flood maps for your property click here.
FEMA Flood Insurance Requirements:
Coverage should equal the lesser of 100% of the insurable value of each building, including all common elements and property OR the maximum coverage available under the National Flood Insurance Program.
- 100% of the replacement cost of the insurable value of the improvements or
- the maximum insurance available from the National Flood Insurance Program (NFIP), which is currently $250,000 per dwelling for all units in condo project.
5. HO-6 (Walls-In Coverage) – This insurance protects everything inside the condominium walls. This must be obtained by the borrower unless the master policy provides the same interior unit coverage. The master policy must include replacement of improvements and betterment coverage to cover any improvements that the borrower may have made to the unit.
As you can see the condominium insurance requirements are extensive. Investors need to know that the unit and the project are adequately protected from a variety of perils.
Once again, this is not something that you’ll need to handle. Your lender will request a copy of the insurance binder from the HOA to verify the insurance coverage meets the requirements. This again is another reason why it’s important to provide your lender with the HOA contact information as soon as you can.