Profile picture for jfBruin

HOA Insurance Renewal Required to Close?

Here's the issue:
- The HOA has a master insurance policy that includes HO-6 ("walls in") coverage for the residents.  The policy expires on July 1 and the HOA has not yet renewed the policy.
- The HOA approved renewing the policy in May, as it does every year, and instructed its property manager to obtain 3 bids for the same coverage as it has now (i.e., "apples-to-apples" bids), also as it does every year.  If the current carrier is the lowest or middle bid, it will select the current carrier.  If the current carrier is the highest bid, it will select the middle bid. The property manager is instructed to send the check as soon as the bids are in.
- All 3 insurance applications were submitted in May and the HOA is waiting for the bids to come back.  They are expected to come in in the next week or two.  No further action is required by the HOA board to renew the policy - the property manager has been given the authority to send the check as soon as it receives the 3rd bid.
- We were scheduled to close on May 31 (40 days after execution of the PSA).  Buyer did not contact this lender until late in the process, so the lender had only had 20 days to review the file at that point and was not prepared to close.  If it was prepared that day, insurance would not have been an issue b/c the lender requires 30 days of remaining term on the master policy.
- I spoke with the property manager and he is willing to provide any documentation requested, inlcuding meeting minutes, documenting that the renewal of the policy has been approved and is imminent based on the procedure described above.
- This HOA is for a new community that is only 3 years old, flush with cash, NO members in default, etc.
Pretty frustrating for me.  I understand the lender's requirement, but I also think common sense should prevail here.  Any ideas on how to get over the hump?
  • June 04 - Mission Viejo
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Answers (4)

Profile picture for jfBruin
I actually have my own HO-6, and was required to get it when I refinanced, so it was news to me that the HOA even provides it.  We have suggested buyer obtaining the HO-6, but the lender also requires the master policy covering structural to be renewed.
  • June 04
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I don't know if you have closed yet, but I would get your own walls in policy in the meantime just so that you can close. They are cheap and you will get the prorated portion of your policy refunded when your HOA's policy kicks in and you can cancel. Truth!
  • June 04
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Profile picture for Mike Politzer
I'm sure the lender is equally frustrated. It just goes to show that you can't always anticipate these items going in. And what is even more ironic, most HOA's, and certainly the newer ones, don't cover the H06, so the buyer would normally have been responsible for getting it themselves. Now that I think about it, you might actually pursue that option - have the buyer purchase a separate HOA policy on their own - the cost (maybe $400+ per year) might be worth it, if no one has an issue with double coverage.
  • June 04
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Profile picture for Brian GFL Capital
sadly, there is no such thing as common sense in the lending industry anymore.

i have never come across this issue before but conventional guidelines are going to want the HO6 policy in place at the time of closing so you may have to wait until it gets renewed.
  • June 04
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