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Master HOA Insurance needed for refinance?

tipsytopsy 1,156 June 13, 2011 at 09:48 AM in Finance (4)
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Hello SD'ers,

I was in process of refinancing and in necessary documents needed to submit, one is 'HOA Master Insurance'.

My subdivision (Planned Unit Development, Single Family detached homes) is half built and the builder went out of business last year. The empty plots were taken over by a bank and hence an HOA could not be established/ maintained because the covenants state that HOA can only be transferred from Declarant (developer) to Elected HOA Committee when 90% of the plots are built. But the Declarant is bankrupt and out of picture even though his name still stands on county recording. So in short, the HOA is 'Administratively dissolved' as per state SOS and the HOA is not current on a Master Insurance.

Our subdivision does not have any common areas like clubhouse, pools or game courts, etc. We do have common parks/ gazebos in the subdivision.

My question for experts: Is a Master HOA Insurance a necessity for refinancing? I've asked this question to the lender but not yet got the reply.


Thanks for your inputs!

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#2
from my experience from dealing with the condos here in NYC, a Master HOA insurance is required by a bank to either finance or refinance a condo. i have yet to hear a bank waving this requirement. in the absence of a functioning HOA and the insurance, you might be able to just buy the master insurance out of your own pocket and put the HOA as one of the covered parties to meet this requirement. fact is that no bank will extend you a loan on the uninsured property... but work with your bank, see what they say.
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Last edited by haim June 13, 2011 at 10:22 AM
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#3
Quote from chaimvital View Post :
from my experience from dealing with the condos here in NYC, a Master HOA insurance is required by a bank to either finance or refinance a condo. i have yet to hear a bank waving this requirement. in the absence of a functioning HOA and the insurance, you might be able to just buy the master insurance out of your own pocket and put the HOA as one of the covered parties to meet this requirement. fact is that no bank will extend you a load on the uninsured property... but work with your bank, see what they say.
Thanks! My subdivision is a single family home PUD. I know for Condo HOA's a master policy is a must, but not for SF. It is not that they are loaning to uninsured property. I have a very good home insurance policy and a $5M Umbrella. So my property should be covered in any unexpected circumstances.

I'm waiting on lenders reply. I purchased the house a year back and no master insurance was required. I confirmed with couple other lenders and they do not require as well. It is just that some companies underwriters are anal about such things in such a depressed economy where many HOA's are not current on their dues.
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#4
This was a requirement on our recent refi. If it is a "PUD", the bank wanted one. This apparently is a new requirement that came out of the latest batch of bank regulations. We had an issue with ours since the policy has the words "condo association" on it, which freaked out the idiots in the bank underwriting dept. So of course we had to explain that we lived in a house, and this was not a condo (with 2 acres of land), and re-explain that, and the re-re-rexplain it one more time just for good measure.

I am not sure why anyone would need this. I guess they are thinking that if someone got hurt on the common areas and there was no insurance that the community residence would be liable? I can't imaging a court in the world that would agree with that.

I would just explain it to them - slowly as they aren't too bright - and hope the explanation placates them.
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E finita la cuccagna

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Quote from slipgate View Post :
This was a requirement on our recent refi. If it is a "PUD", the bank wanted one. This apparently is a new requirement that came out of the latest batch of bank regulations. We had an issue with ours since the policy has the words "condo association" on it, which freaked out the idiots in the bank underwriting dept. So of course we had to explain that we lived in a house, and this was not a condo (with 2 acres of land), and re-explain that, and the re-re-rexplain it one more time just for good measure.

I am not sure why anyone would need this. I guess they are thinking that if someone got hurt on the common areas and there was no insurance that the community residence would be liable? I can't imaging a court in the world that would agree with that.

I would just explain it to them - slowly as they aren't too bright - and hope the explanation placates them.
Thanks for your reply. Yeah it looks like this requirement is fairly recent. I didn't have it a year earlier. Let's see if they're able to understand it or I'll either go with some other lender or reinstate my HOA Master Insurance after meetings my neighbors.

FWIW, the lender is Aimloan.com . They have been very good in rates and process, except for this requirement.
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#6
yes BUT who takes care of the common grounds?

AFAIK the HOA in your case would be responsible for setting rules (no paining your house pink) and also collecting fees for upkeep of common property.

Now you have common property but no legal means to require people to support it.

I used to live in a condo and was on the board AND I needed to present the condo's policy to my lender for the mortgage. Granted in condos the insurance covers the structure whereas in an HOA it covers? What DOES a HOA policy cover? You don't have a clubhouse or pool..........
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#7
Quote from Dr. J View Post :
yes BUT who takes care of the common grounds?

AFAIK the HOA in your case would be responsible for setting rules (no paining your house pink) and also collecting fees for upkeep of common property.

Now you have common property but no legal means to require people to support it.

I used to live in a condo and was on the board AND I needed to present the condo's policy to my lender for the mortgage. Granted in condos the insurance covers the structure whereas in an HOA it covers? What DOES a HOA policy cover? You don't have a clubhouse or pool..........
As per the PUD plan, the common places (3 parks/ picnic spots including Gazebo's at each location) are to be maintained by the HOA using the membership fees. Other stuff HOA enforces is same like everyone else. Roads are public so no issues with that.

Since the builder went bankrupt (He's the Declarant on our HOA), the HOA was never transferred to the residents.So since past 2 years there has been no maintenance of common grounds. All of us residents are going to chip-in money outside of HOA and get those areas cleaned up. In few months a new developer is coming to build new homes on remaining sites.

Basically the common areas are least of all resident's concern because none of us use them. The only question is that why do we need a liability/ insurance on the common areas when we do not use it and have abandoned it? And why does mortgage company enforce it? Even if we have it, it will only cover the liability of common areas. In any case, anything happening on my property is covered with my insurance/ umbrella.

For example if there was no HOA, we're not going to burn down common areas for getting rid of liability. How does mortgage company deal with houses where HOA is dissolved? Will they not loan?
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#9
who OWNS the common property? perhaps it is for liability reasons. someone has to own it.
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Quote from tipsytopsy View Post :
...The only question is that why do we need a liability/ insurance on the common areas when we do not use it and have abandoned it? And why does mortgage company enforce it? Even if we have it, it will only cover the liability of common areas. In any case, anything happening on my property is covered with my insurance/ umbrella.

For example if there was no HOA, we're not going to burn down common areas for getting rid of liability. How does mortgage company deal with houses where HOA is dissolved? Will they not loan?
As i believe someone pointed out earlier, see it this way: if someone in the common area (that's for the sake of the example is next to your lot) fell and broke her leg because the snow was not shoveled and ice formed underneath it. the common practice to do in this case, and i am sure many lawyers will do it, would be to sue the HOA AND the homeowners of the surrounding properties... and that might as well be one of the reasons why the HOA needs the insurance.

the presence of the common areas would warrant the insurance requirement. if, on the other hand, the HOA has not been turned over to the homeowners and no dues were collected, you might be able to make a point that your house is more like a stand-alone single-family house rather a part of the site condominium.
God speed
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Last edited by haim June 13, 2011 at 07:02 PM
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#11
Quote from Dr. J View Post :
who OWNS the common property? perhaps it is for liability reasons. someone has to own it.
I'm note sure. As per the original covenants, it is considered common property of the HOA 'accessible' to all residents (doesn't say who owns it). But if HOA is not there, who'll really own it? I'm not sure. May be some real estate person like GeneralGhoul would know it.

Quote from chaimvital View Post :
As i believe someone pointed out earlier, see it this way: if someone in the common area (that's for the sake of the example is next to your lot) fell and broke her leg because the snow was not shoveled and ice formed underneath it. common practice to do in this case, and i am sure many lawyers will do it, would be to sue the HOA AND the homeowners of the surrounding properties... and that might as well be one of the reasons why the HOA needs the insurance.

the presence of the common areas would warrant the insurance requirement. if, on the other hand, the HOA has not been turned over to the homeowners and no dues were collected, you might be able to make a point that your house is more like a stand-alone single-family house rather a part of the site condominium. god speed
Yeah I got your point and I understand that it could spell trouble for residents if what you mentioned happens. But how can we establish the ownership of the common area when the HOA is delinquent and developer no longer there and a bank owner all empty lots. I checked the deeds of the bank owned lots on county website, and they do not own common areas. So it is really a gray area there.

I think we may need to hire an attorney and get this sorted out once. Basically either make HOA non-existent and establish ownership of the common areas or form a new HOA and maintain common areas along with insurance.


Thank you all for your inputs. You all have brought up good points!
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Quote from tipsytopsy View Post :
...
The empty plots were taken over by a bank and hence an HOA could not be established/ maintained because the covenants state that HOA can only be transferred from Declarant (developer) to Elected HOA Committee when 90% of the plots are built. But the Declarant is bankrupt and out of picture even though his name still stands on county recording. So in short, the HOA is 'Administratively dissolved' as per state SOS and the HOA is not current on a Master Insurance....
I would argue that (provided 90% of the plots haven't been built) the HOA has never been legally transferred to the homeowners per the covenants above. So legally, whoever took over the assets of the developer in this PUD is the legal owner of the common areas and bears the responsibility of maintaining and insuring it...
(usually, when the HOA has been transferred, each homeowner owns the percentage of the common areas based on the size of his lot relative to the size of the PUD, but the HOA as a whole is responsible of maintaining 100% of the common areas with of the common dues that it collects.)
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Last edited by haim June 13, 2011 at 07:24 PM
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