Over the last few months, we have started to see changes in the requirements for insurance that Mortgage Companies are demanding. In years past, the only proof of insurance that was required in order to close escrow, was a certificate of insurance prepared by the Home Owner Association's Master policy. With this document, the Mortgage Company would consider the insurance requirement complete, and no one cared if you protected your own "Stuff".
Today we are seeing more and more Mortgage Companies demanding that the new owner provide a Condominium Unit owner's Policy. This policy must include "Building" coverage adequate to protect the mortgage amount. In essence, the new requirements, mandated by the Lender, does not recognize that a master policy exists. This is forcing the new owner to pay additional money for duplicate coverage.
The recent downturn in the economy, and the number of HOA's that are no longer financially sound is probably the reason behind the mandatory requirement of a separate policy. We are seeing many HOA's letting policies cancel for non-payment. If an HOA is having a hard time paying for insurance, they are usually having a hard time paying for normal maintenance. These Condominiums are also susceptible to higher claim frequencies. The first time that many individuals and Mortgage companies find out that there is no insurance on a Condominium is after the claim!
My personal preference is to always purchase a separate unit owners insurance policy that will protect my "stuff". My "stuff" includes:
1. Personal belongings (contents)
2. Building Coverage (so that I am not relying on someone else to protect one of my largest assets)
3. Personal Liability protection (If I get sued because someone tripped)
4. Loss of Use (I need a place to stay if the Condo is destroyed)
Even if I plan on renting the Condo for investment purposes, It is just as important, if not more important to have a separate Rental Condo Unit Owners insurance policy. This policy protects my interests as a landlord and the policy includes:
1. Business Contents (Washer/Dryer etc.)
2. Building Coverage (so that I am not relying on someone else to protect one of my largest assets)
3. Land Lord Liability (If I am sued in a business capacity)
4. Loss of Rents. (when I can't rent the condo because it is being repaired)
Condominiums continue to be a great way to own a residence and have some of the responsibilities of home ownership passed on to the association. Keep in mind that this is also a double edged sword. You should be vigilant in knowing what is going on in your HOA. You should make some of those meetings and understand how financially sound the HOA is. Those people who show concern and ask questions, are also asked to share in the responsibility of governing the HOA. This brings a whole new set of issues and considerations on your part. All in all, condo ownership fits the needs of some people, in a price range that can be more affordable than a free standing house and may be just what you need.
