Most of the new guidelines set forth in the new Condominium Project Approval and Processing Guide became effective June 30, 2011, including provisions regarding new insurance requirements for associations and management companies.

One problematic provision in the new guidelines is the requirement in Section 2.1.9 which states that any homeowners association engaging the services of a management company must show proof that the management company maintains fidelity insurance naming the association as an obligee in an amount (1) not less than the estimated maximum of funds, including reserve funds, in the custody of the owners association or management agent at any given time during the term of each bond; and (2) in no event may the aggregate amount of such bonds be less than a sum equal to 3 months aggregate assessments on all units plus reserve funds unless State law requires a maximum amount of required coverage.

The major concern with the above requirement was the fact that essentially double coverage for the same thing was being required on behalf of the Association and the management company.  Additionally, the coverage required for the management company is a product that is not even offered in many states.

At an FHA training seminar last week, FHA representatives announced that Section 2.1.9 will be revised soon to reflect that the management company does not have to maintain a fidelity policy listing the Association as an oblige as long as the association’s fidelity policy specifically lists the management company by name as an additional insured.  The policy must list the exact name of the management company and cannot simply refer to the generic term “management company” or “managing agent”.

If your association is currently FHA certified, or if you desire to be eligible for FHA insured loans, we recommend you speak to your insurance agent to ensure your fidelity policy meets these requirements.

Should you have questions regarding the FHA certification process or desire assistance obtaining certification, please contact us at 303-432-9999.

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