Sunday, April 26, 2009

New Condo Insurance Rules

There are new rules regarding insurance coverage for attached condominium projects. For all loan applications dated on or after March 1, 2009, lenders are now required to verify that hazard insurance covers fixtures, equipment, and other personal property inside individual units.

If the master insurance policy provides this type of coverage, then the borrower does not need to purchase additional insurance. The master insurance policy is the one that is included in the HOA dues. Most master insurance policies for condos DO NOT include this type of coverage, so the borrower needs to purchase additional insurance before the loan can close.

This type of insurance is known as "walls-in" coverage, commonly referred to as an HO-6 policy. The HO-6 policy must provide coverage for no less than 20% of the condominium unit's appraised value.

What this means for real estate agents and mortgage brokers is that there is now an additional cost to the buyer if the master policy does not provide the "walls-in" coverage.

The cost of the coverage is NOT escrowed, like hazard insurance for a single family residence normally is. However, a full year's payment must be made at closing.

Make sure you tell your buyers that they need this new coverage if the master policy doesn't provide it.

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