No Insurance, Is That A Problem for a Condo or HOA?

I would say that the answer is a big fat “Yes!” Unless the governing documents are written such that insurance coverage is provided as a responsibility of a party other than the HOA, such as the developer or the individual owners, then there are a number of problems – see more below and the following note from a reader:

Our HOA has not renewed its insurance and I cannot get my refi done because of it.  What can I do to get this solved ?

Wow. This seems like a serious problem. Unless there is another solution or provision for the HOA in the governing documents that offers protection that insurance would otherwise offer, I would say there is a potentially volatile situation brewing. If it’s true that there is no insurance, then the question would be what protection is in place for fire, flood, accidents in the common area or board liability for negligent decisions.  

I can understand the turndown on a loan on such a project. Unless there is something unusual going on HOA and Condo documents generally require the board to procure various types of insurance to cover casualty losses to buildings and improvements, common area accidents, and board negligence, and thus, if a board has not taken steps to get the insurance, there is a looming claim for breach of fiduciary duty. Some townhome developments or stand alone condo developments place the responsibility on owners to insure their own homes. However, that alone would not necessarily preclude getting loan approval as long as the documents required protection for the structure and liability.

And I might add its not fair to volunteer board members to drop or fail to procure board directors and officers liability protection. Who would want to serve? Some associations cannot get it if there have been a series of lawsuits based on breach of fiduciary duty, but that is a different situation.

It will be difficult for this person to resolve the lack of insurance problem, especially on her own and in the short term. Running for the board might be a step in the right direction to right decisions for the HOA – but there is probably more than meets the eye in this situation. But if an owner fails to be able to refi because of something the board did or did not do that it was supposed to do, there may be a chance of recovering the losses based on a claim for breach of fiduciary duty. It might be hard to prove the turn down was based on the lack of insurance alone unless you could get the lender to spell it out and put it in writing.

  • Share/Bookmark

Sorry, comments are closed for this post.