Financing Condominiums and New Insurance Requirements

Over the last few months, we have started to see changes in the requirements for insurance that Mortgage Companies are demanding. In years past, the only proof of insurance that was required in order to close escrow, was a certificate of insurance prepared by the Home Owner Association’s Master policy. With this document, the Mortgage Company would consider the insurance requirement complete, and no one cared if you protected your own “Stuff”.

Today we are seeing more and more Mortgage Companies demanding that the new owner provide a Condominium Unit owner’s Policy. This policy must include “Building” coverage adequate to protect the mortgage amount. In essence, the new requirements, mandated by the Lender, does not recognize that a master policy exists. This is forcing the new owner to pay additional money for duplicate coverage.

The recent downturn in the economy, and the number of HOA’s that are no longer financially sound is probably the reason behind the mandatory requirement of a separate policy. We are seeing many HOA’s letting policies cancel for non-payment. If an HOA is having a hard time paying for insurance, they are usually having a hard time paying for normal maintenance. These Condominiums are also susceptible to higher claim frequencies. The first time that many individuals and Mortgage companies find out that there is no insurance on a Condominium is after the claim!
My personal preference is to always purchase a separate unit owners insurance policy that will protect my “stuff”. My “stuff” includes:

1. Personal belongings (contents)
2. Building Coverage (so that I am not relying on someone else to protect one of my largest assets)
3. Personal Liability protection (If I get sued because someone tripped)
4. Loss of Use (I need a place to stay if the Condo is destroyed)

Even if I plan on renting the Condo for investment purposes, It is just as important, if not more important to have a separate Rental Condo Unit Owners insurance policy. This policy protects my interests as a landlord and the policy includes:

1. Business Contents (Washer/Dryer etc.)
2. Building Coverage (so that I am not relying on someone else to protect one of my largest assets)
3. Land Lord Liability (If I am sued in a business capacity)
4. Loss of Rents. (when I can’t rent the condo because it is being repaired)