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Condo Insurance

For conventional loans, both Fannie Mae and Freddie Mac require condos to have specific coverages included in their master insurance policy to approve the condo project for financing.

Both Full Review and Limited Review methods require the following coverages and endorsement requirements:

1. Building coverage must document Replacement Cost Coverage, Extended Replacement Cost, or Guaranteed Replacement Cost Coverage (Any of these three are acceptable)
2. Building coverage deductible may not be greater than 5% of the building coverage
3. Building Ordinance or Law Endorsement including all the following:

1. Undamaged Portion coverage – If the building is partially damaged by a covered cause of loss, the local building department or Fire Marshal may require the demolition of the undamaged portion of the structure and reconstruction of an entire new building. This coverage covers the additional cost rebuilding the undamaged part of the building.
2. Demolition – covers the cost to demolish the remaining portion of the building left standing after the original cause of loss.
3. Increased Cost of Construction – covers any mandatory building enhancements required by the current building code. Common examples which might apply include hurricane strapping, fire sprinkler systems, ADA-compliant hardware, or elevators.

4. Boiler and Machinery or Mechanical Equipment Breakdown coverage included.  (This is only required if the building has central heating or cooling)
5. Minimum of 10 days advanced notice for cancellation or changes to the policy.
6. Renewal policy required if the current policy is expiring in the next 30 Days
7. The certificate of insurance must list the client’s name and First Home’s mortgagee clause.
8. The certificate of insurance or ACORD form must be signed by an authorized agent for the insurer. (Or we can also accept an email from an authorized insurance agent stating it is against the insurer’s business practice to sign).

A Full Review also requires the following additional master insurance coverages:

1. Liability Coverage of at least $1 million ‘per occurrence’
2. Severability of interests or separation of insureds included as an endorsement
3. Fidelity Bond or Crime or Employee Dishonesty coverage if the condo project has greater than 20 units and 3 months of common assessments is greater than $5,000. The amount of coverage equal at least 3 months of the common assessments.
4. If the condo project has a managing agent, then the managing agent must also be covered as an additionally insured on the Fidelity Bond coverage. (If the managing agent is not covered under the HOA’s policy but instead document that they carry their own sufficient fidelity policy, then Freddie Mac will accept the condo project)

IMPORTANT NOTE: If the condo association master insurance policy includes coverage for betterments and improvements for the condo’s interior, then the buyer does not need to acquire an H06 coverage for the interior of their condo.  However, if the buyer wishes to cover their personal property and liability, they may opt to purchase an H06 policy and pay for the premiums directly.

Here are some other major issues we have found with master insurance policies:

1. Master/Blanket insurance policies that provide coverage for multiple unaffiliated projects on a single insurance policy. Each condo project must have their own individual master policy.
2. Master policies with a co-insurance provision with no agreed amount endorsement. To accept a master policy with a co-insurance provision, the agreed coverage amount must be sufficient to rebuild condo project at the current estimated cost to replace it.
3. Master policies that provide actual cash value coverage for the condo project. Actual cash value only provides a depreciated amount of coverage for the value of the remaining economic life of the condo project. All master policies must instead include replacement cost coverage to ensure the condo project is rebuilt to its original specifications.

Questions?  Ajaffe@firsthome.com or 240 479 7658

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