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White CondosMany people across the country are taking advantage of low interest rates to refinance their condos. If you run your condo’s association or if you are a property manager for an association this comes as no surprise to you. When unit owners re-finance their condos the individual lending institutions want to be added as “loss payee’s/mortgagees” to the associations master insurance policy. Ultimately, the lending institutions request cannot be met which leaves the individual unit owner between a frustrated lending institution and an exacerbated condo association. Unit owner’s lending institutions cannot be added as loss payees because the unit owner has no insurable interest in the real property the association owns. The lending institutions should be added as loss payees on the individual unit owners HO6 insurance policy.

When it comes to insurance and condo associations it is best to think of the association as its own entity much like a corporation. Condo association’s structures and what they own varies greatly from association to association. On the most basic level the associations, as an entity, owns a complex’s “common areas” and the exterior of the condo buildings. As an entity the association takes out an insurance policy on what it owns. This policy is known as a master policy. When there is a claim the master policy pays the association for the damage caused by the claim. The state of South Carolina mandates that all of the money from a master policy be paid directly to the association that holds the master policy. It does not allow any money to be paid to a lending institution. The insurable interest of unit owners lending institutions lies in the individual units that they are refinancing not the entire condo complex!

Individual unit owners should carry HO6 or “condo” insurance policies. H06 policies are responsible for property that is “wall-in”. Walls in means that the policy is responsible for the property that falls between the interior walls of the individual unit. Many HO6 policies have low or minimum coverage limits for the interior of the homes. In the event of a catastrophic loss the limits of the H06 would not be enough to fix the unit.

The limit of property insurance in an HO6 policy is generally much lower that the amount of the re-financed mortgage. The lending institutions asked to be added to an association’s master policy because the lending institution is trying to guarantee that in the event of a loss it will have recourse to re-coup the value of the mortgage from the association’s insurance policy. As we pointed out earlier the lending institution cannot be added to the master policy because they have no ownership in the association’s property. The institutions are entitled to an evidence of insurance certificate from the master policy that shows the limits of insurance but nothing else.

Association’s need insurance agents who understand the separation of ownership between a unit owner and the association. If the agent gets the coverage wrong it can spell disaster for an association in the event of a claim.

CSP Insurance Services have experienced agents who can help with exactly these kind of intricate issues. Call us today for a condo association insurance quote.

Lawson Walker
Contact Lawson Walker
Call: (843) 468-9718


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