ASSOCIATIONINSURANCE REQUIREMENTS
STATE LAW, GOVERNING DOCUMENTS, AND LENDER WARRANTABILITY ALL IMPOSE MINIMUMS.
STATE LAW, GOVERNING DOCUMENTS, AND LENDER STANDARDS ALL APPLY SIMULTANEOUSLY.
An association's insurance requirements come from three sources that all apply at the same time. State statutes set legal minimums. The CC&Rs and bylaws set community-specific requirements that may exceed state law. Fannie Mae and Freddie Mac set warrantability standards that affect every unit owner's ability to finance. The association must meet the highest requirement from all three sources — not just one.
Fannie Mae requires master property at 100 percent replacement cost, GL of at least one million per occurrence, fidelity equal to at least three months of assessments plus reserves, and flood insurance in FEMA zones. Falling below any of these causes the project to lose warrantable status — which blocks conventional financing for every unit buyer in the building.
ASSOCIATION REQUIREMENTS — ANSWERED.
WHAT INSURANCE IS LEGALLY REQUIRED?
Varies by state and governing documents. Most states require property at replacement cost. Many require GL. D&O and fidelity are required by governing documents and Fannie Mae. Workers' comp required if association has employees.
WHAT ARE FANNIE MAE AND FREDDIE MAC REQUIREMENTS?
Property at 100% replacement cost, GL at least $1M per occurrence, fidelity equal to 3+ months assessments plus reserves, flood in FEMA zones. Non-compliance = loss of warrantable status.
WHAT HAPPENS IF THE ASSOCIATION LOSES WARRANTABLE STATUS?
Unit buyers can't get conventional mortgages — only portfolio, FHA, or cash. Fewer buyers = lower values = fewer improvements = further deterioration. A downward cycle.
WHAT DO THE GOVERNING DOCUMENTS REQUIRE?
CC&Rs and bylaws specify minimums — property at replacement cost, GL, D&O, fidelity, umbrella, and sometimes flood or earthquake. Board has fiduciary duty to maintain what documents require.
SHOULD THE ASSOCIATION REQUIRE OWNER HO-6 POLICIES?
Yes. HO-6 with loss assessment, liability, and interior coverage protects both owner and association. Some documents already require it. Even if not required, adopt an HO-6 requirement resolution.
HOW OFTEN SHOULD REQUIREMENTS BE REVIEWED?
Annually at renewal minimum. Fannie Mae updates guidelines, state statutes change, and the association's risk profile evolves. We review requirements compliance at every renewal.
CONFIRM YOUR PROGRAM MEETS ALL THREE LAYERS OF REQUIREMENTS.
Kelly Insurance Group reviews state, governing document, and warrantability requirements at every renewal so nothing falls below compliance. Since 1881.
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