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Subject: Homeowners insurance compliance
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FirstL3
(Illinois)

Posts:37


05/14/2020 5:17 PM  
We are a smaller 40 unit town home association.

We require that owners have regular homeowners insurance as they are responsible for both inside and outside of unit in case of an incident such as fire.

For years we struggle to come up with a good system to track and enforce compliance.
Even if we had a perfect system where we could track, somebody still could cancel policy.

I am looking for ideas and best practices on how to deal with this situation. Ideally, we woudl be notified by insurance that policy got canceled or altered. But I don't know whether this is possible.

Any ideas are appreciated.

SheliaH
(Indiana)

Posts:3229


05/14/2020 8:14 PM  
This seems as difficult to track as it is to check how many people are renting out their unit, so I got nothing. I suppose you could have homeowners update you If they change their policy, similar to what the BIG does in our state (you must provide your insurance information when renewing your plates.

I don't think people are REQUIRED to have homeowners insurance. You need it If you have a mortgage, but not if you own the home free and clear. All you can do is encourage people to get a policy and ensure its coverage doesn't clash with the association's master insurance. Let them know what areas of the home they're responsible for, and what it could cost them personally if something happe. After that, it's the owner's job to take steps to reduce his/her risk.
GeorgeS21
(Florida)

Posts:2693


05/14/2020 8:40 PM  
I’m confused ...

FirstL said their townhouse HOA requires insurance, but Shelia says folks cannot be required to have insurance?
MarkW18


Posts:1071


05/14/2020 9:18 PM  
Posted By GeorgeS21 on 05/14/2020 8:40 PM
I’m confused ...

FirstL said their townhouse HOA requires insurance, but Shelia says folks cannot be required to have insurance?



Please re-read her comment.

I think the OP is confused
CathyA3
(Ohio)

Posts:964


05/15/2020 5:48 AM  
My COA has a similar provision to the OP's community. Our Declaration says that "any unit owner or occupant shall carry such insurance in addition to that provided by the Association..." There is no exception for those without a mortgage.

But the provision doesn't give our board any ability to enforce it, such as allowing the association to require proof of insurance from owners. I suppose we could do so even though this isn't spelled out, since the section of our CC&Rs that deals with enforcement gives the board somewhat broad powers. And our association is required to carry "all included" insurance, so that in the event a unit is completely destroyed, it would be rebuilt/restored to its original condition (this would exclude any owner-installed improvements).

We're condos, though, and it sounds like the OP's community is very different, so there could be an issue if a unit was destroyed and the owner didn't have enough funds to rebuild. Maybe look in the CC&Rs to see if there is a provision that deals with rebuilding or condemnation of property - that may give you some leverage to enforce.

And maybe talk with your HOA's insurance agent to see if he/she has any helpful advice.

As Sheila noted, lenders require such insurance, and the lender's name and the association's name will usually appear as "interested parties" on the insurance documents, so both should be notified if the homeowner cancels the policy. I'm pretty sure this doesn't happen 100% of the time, though.

So, to sum up... check your CC&Rs, specifically those sections dealing with enforcement in general and rebuilding/condemnation of property. Check with the HOA's insurance agent.

In the end, if your governing docs don't give your association the ability to enforce a provision, you can only do the best you can.
FirstL3
(Illinois)

Posts:37


05/15/2020 5:53 AM  
Our declarations state the following:

16.2 OWNER'S INSURANCE OBLIGATIONS: Each Owner shall be responsible for
procuring homeowner's insurance to include general liability for his townhouse on his Parcel.
The cost of this insurance shall be paid directly by each Owner and shall not be an expense of
the Association.

BTW. we do not allow renting.

In the past we asked homeowners to send in copy for review/record keeping. As with any community 99% have insurance, at the right amount. Some new owners might end up initially with a renters/condo type of insurance.

Our big fear: if a unit gets destroyed by fire and needs to rebuild. We actually had such a situation with two buildings affected. One with insurance coverage, and one owner who cancelled insurance just a month before. Luckily that owner found the funds to rebuild.
GeorgeS21
(Florida)

Posts:2693


05/15/2020 6:02 AM  
Never been in a townhouse HOA ... but, the danger to other units close to a fire, their inhabitants and their belongings is pretty clear.

Just set administrative proof policy at the Board level, based on the requirements, and uphold the policy that connects to the declaration. Consider exchanging, via mail or email, with the insurance agency, confirmation regarding each property, annually ... trust but verify.

Find some examples of townhouses being destroyed and/or damaged to make your point.

If you have a recalcitrant owner who refuses to provide documentation, or who refuses to obtain insurance, follow an audit trail of warnings, then take them to court - set the precedent early.
SheliaH
(Indiana)

Posts:3229


05/15/2020 6:26 AM  
For years, I thought homeowner's insurance was required but learned otherwise when the question came in during one of our board meetings. I live in a townhouse community and there was a discussion about a vacant house that had a burst pipe and the water damage extended to two adjoining units.

One of our board members noted that there are some people who have enough paper (money, that is) to self insure themselves, so they don't buy homeowner's insurance and since they own the house free and clear, they don't have to. It was an eye-opener, to say the least.

Of course, no one in my neighborhood has that kind of money (otherwise they wouldn't be living here!)

As George noted, finding examples of townhomes that didn't have adequate insurance may be enough to drive home the importance of getting a policy. Asking the association's master insurance for a few stories may be a great place to start. Before we stopped our newsletter, I ran a few articles on the importance of having homeowner's insurance (the master insurance company helped with the content) - although our documents don't mention homeowner's insurance, people knew the association's master policy wouldn't help them with any damage inside the unit, so they had to protect themselves - and make sure those renting out the unit had renter's insurance.

FirstL3
(Illinois)

Posts:37


05/15/2020 6:59 AM  
Most homeowners will end up with the right insurance and renew.
I tend to see the following 3 challenges:

1.) new owners moving in - oftentimes there is confusion what is required. Insurance agents oftentimes advice owners incorrectly
2.) arguments about amount required. i.e. rebuilding is more than the property value - or what is insurance base coverage and how it extends (percentage)
3.) homeowners that cancel or modify insurance

3.) is most difficult to track.

We are also having a discussion on whether or not to mandate minimal coverage $
LetA
(Nevada)

Posts:947


05/15/2020 7:53 AM  
Posted By SheliaH on 05/15/2020 6:26 AM
For years, I thought homeowner's insurance was required but learned otherwise when the question came in during one of our board meetings. I live in a townhouse community and there was a discussion about a vacant house that had a burst pipe and the water damage extended to two adjoining units.

One of our board members noted that there are some people who have enough paper (money, that is) to self insure themselves, so they don't buy homeowner's insurance and since they own the house free and clear, they don't have to. It was an eye-opener, to say the least.

Of course, no one in my neighborhood has that kind of money (otherwise they wouldn't be living here!)

As George noted, finding examples of townhomes that didn't have adequate insurance may be enough to drive home the importance of getting a policy. Asking the association's master insurance for a few stories may be a great place to start. Before we stopped our newsletter, I ran a few articles on the importance of having homeowner's insurance (the master insurance company helped with the content) - although our documents don't mention homeowner's insurance, people knew the association's master policy wouldn't help them with any damage inside the unit, so they had to protect themselves - and make sure those renting out the unit had renter's insurance.






When Businesses self insure, typically they need to have that on record with the states commissioner of insurance and have said "bond"held in escrow.

As far as the OP's question, why can't boards require that unit owners name the association as one of the named insured. That way if the policy lapses or is canceled the association is immediately notified.
FirstL3
(Illinois)

Posts:37


05/15/2020 8:15 AM  
I wonder if we could require adding "HOA as an additional interest" to policy.

I found this:
https://baytownewest.com/documents/rules/2020/01/30/have-you-sent-proof-of-insurance-yet/
CathyA3
(Ohio)

Posts:964


05/15/2020 8:22 AM  
Posted By LetA on 05/15/2020 7:53 AM


As far as the OP's question, why can't boards require that unit owners name the association as one of the named insured. That way if the policy lapses or is canceled the association is immediately notified.



I think that the governing docs need to allow for that. Ditto state association or insurance law, possibly. It may also depend on the structure of the homes (ie. allowed in condos since the structure is usually common elements, but not townhomes or detached homes). Worth checking into, though.

For what it's worth, my (condo) declaration requires condo insurance (aka HO6 policies) but prohibits owners from also insuring things that are covered by the association's all-included insurance. Violating this can reduce the amount that the owner is reimbursed for an insurable event. But this stuff very much depends on who owns what and how everything is insured - some condo communities have bare-bones insurance. It's complicated stuff - our insurance agent says that even the pros scratch their heads when dealing with attached homes.

FirstL3
(Illinois)

Posts:37


05/15/2020 8:41 AM  
interesting.

There seem to be two options:
1.) "HOA as additional interest"
2.) "HOA as additional insured"

https://www.reddit.com/r/Insurance/comments/alpm5z/hoa_as_additional_insured/

Seems like 1.) is a bit easier.
JohnC46
(South Carolina)

Posts:9471


05/15/2020 9:27 AM  
My HOA (standalone patio homes) requires each owner to have homeowners insurance and the HOA to be named as co-payee. This is so one cannot run away with any insurance payment and to insure repairs/replacement meets or criteria. Occasionally we get an owner saying my insurance agent says this is not proper. We have had to have our lawyer call and egent or two and they made it happen
MarkW18


Posts:1071


05/15/2020 9:29 AM  
To the OP,

Unless your CCRs are clearly defined, you are overstepping your authority, if there is any.

Insurance requirement, both for homeowners and the association, more so for the association.

If the homeowners are truly responsible for their home's insurance, then the HOA is not involved, UNLESS the homeowner is using some part of the common area for a party, then the HOA can require that the homeowner provide a Certificate of Insurance for a specific date named the HOA as additional insured.

The insurance for the homeowner's dwelling is between the homeowner, an insurance company and the mortgagee. All mortgages require at least fire, and depending on the location of the property, wind and flood.

You might you have struggled to track and enforce compliance. For what exactly. Does your governing documents require that you track insurance documents for each and every homeowners. You are dealing with multiple mortgage companies, servicers of the loans, multiple insurance companies and agencies, multiple start and end dates, some policy are paid directly by homeowners, most all are impounded.

My advice, stick to what the governing documents allow you and no more.
FirstL3
(Illinois)

Posts:37


05/15/2020 9:50 AM  
We have a deceleration that states homeowners require homeowners insurance.
There is a general clause that asks association to help enforce decs.

Also, 95% of homeowners would be supporting any dec change if necessary given our fire experience with one homeowner with no insurance. We just got lucky that owner was able to find funds and did so.

What we want to protect against:
- situation where a unit is destroyed and owner is unable to rebuild
- our dec require to do so and if not I am sure some legal action could be taken. I believe (do not know) that in an extreme case HOA woudl take possession of unit. But I can't imagine the cost and complexity of that process. Further, if HOA rebuilt, HOA could sell. Bu rebuild is more expensive than home value by $100k. So, HOA woudl need to find funds?
MarkW18


Posts:1071


05/15/2020 10:01 AM  
Do you have a property management company? If so, ask them for help.

Unless someone sees all your docs, we are shooting blanks in the wind.
CathyA3
(Ohio)

Posts:964


05/15/2020 10:22 AM  
Posted By FirstL3 on 05/15/2020 9:50 AM
We have a deceleration that states homeowners require homeowners insurance.
There is a general clause that asks association to help enforce decs.

Also, 95% of homeowners would be supporting any dec change if necessary given our fire experience with one homeowner with no insurance. We just got lucky that owner was able to find funds and did so.

What we want to protect against:
- situation where a unit is destroyed and owner is unable to rebuild
- our dec require to do so and if not I am sure some legal action could be taken. I believe (do not know) that in an extreme case HOA woudl take possession of unit. But I can't imagine the cost and complexity of that process. Further, if HOA rebuilt, HOA could sell. Bu rebuild is more expensive than home value by $100k. So, HOA woudl need to find funds?




If you're thinking about amending your declaration, you should talk to an attorney who is well-versed in HOA law. The amendment needs to be written in legalese and needs to comply with applicable state laws - it's not a job for the board.

Your declaration should address things like rebuilding and condemnation, and what the HOA can or must do. If the homeowner can't afford to rebuild, you may be looking at something resembling a foreclosure. But most of us here are not attorneys, and those who have handled a foreclosure were probably dealing with delinquent assessments on units that did not need to be rebuilt. A competent attorney needs to answer this.
FirstL3
(Illinois)

Posts:37


05/15/2020 10:56 AM  
yes, we have an attorney on retainer. She helped us before with changes and the usual business

Our management company was unable to provide help.

I am trying to figure basic strategy to propose which likely could require a dec change.

I think it includes 3 elements:
1.) a method for HOA to know people have insurance, and we get notified if canceled or not.
2.) a decision on mandating minimal insurance coverage
3.) "Somebody" to read policy and actually understand it to make sure it is right type and right coverage
4.) Clarity on worst case scenario. - Although 4.) becomes a lesser issue with 1-3 in place.

I am sure we are not the only HOA in this situation....



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