Condominium Insurance Coverage

Condominium insurance is not only a good idea, it is now required for the financing of Condos with conventional financing.  This requirement was put into place by Fannie Mae and Freddie Mac in mid 2009.  The required policy is commonly known as a “walls-in” insurance policy.

HO-6 Condo Insurance Policy

An HO-6 policy is the form used for condo insurance policies. The policy will provide for coverage on the interior walls and for personal property held within the dwelling. Usually, the policy will also provide liability coverage for the owner.

The breakdown of coverages are as follows:

• Coverage A – Dwelling: Declared Value.
• Coverage B – Other Structures: Part of Coverage A.
• Coverage C – Personal Property: $10,000 minimum.
• Coverage D – Loss of Use: 50% of Coverage C.
• Liability: Minimum of $100,000.
• Medical Payments: Minimum of $1,000

“WALLS-IN” HO-6 COVERAGE FREQUENTLY ASKED QUESTIONS

WHAT IS A “WALL-IN” HO-6 POLICY?

A condo owner typically owns the home’s airspace, not the actual structure of the home. The condo association’s master policy covers the actual structure of the home itself, but the area from the “walls-in” is not covered unless specifically stated. The “walls-in” ho-6 policy addresses this important gap in the borrower’s risk protection. Additionally, the “walls-in” coverage may protect the borrower’s possessions and liability risk inside of the condo (furniture, accidents and injury inside condo, etc.)

EXAMPLE – ROOF DAMAGE TO CONDO

If the roof of your borrower’s condo gets damaged, for example, and water leaks into the unit, the master policy would cover the roof repair but not individual unit repairs to things like the ceiling, walls, or floor treatments. This is because the roof is covered by the condo association’s master policy as part of the actual structure. The ceiling, walls, floors, and other items inside the airspace of the condo are not covered by the master policy.

THE BORROWER PROBABLY ALREADY HAS “WALLS-IN” COVERAGE

If your loan has been made deficient for “walls-in” coverage, don’t sweat calling the borrower to ask for it. The borrower probably has already purchased this coverage.

A good insurance agent would definitely recommend “walls-in” to all condo owners. The agent wouldn’t want the condo owner’s airspace, personal belongings, and liability for injuries to be at risk. Your borrower probably already has this coverage, but simply hasn’t given you a copy because it hasn’t been asked for.

HOW MUCH DOES THIS COVERAGE COST AND HOW MUCH COVERAGE IS REQUIRED?

“Walls-In” Coverage cost about the same or a little more than a typical renter’s insurance policy. For a two-bedroom condo, a $500 annual premium should more than cover the cost of the policy in most cases. AmTrust requires that the policy amount be equal to or greater than 20% of the condo’s appraised value.

WHY IS THE BUYER REQUIRED TO HAVE THIS COVERAGE, ISN’T THAT THE BORROWER’S PERSONAL DECISION TO PURCHASE THIS COVERAGE OR NOT?

The condo owner’s master policy does not fully protect AmTrust or the borrower from the potential damage to pledged collateral. The airspace inside the home represents real value that must be protected. Damage to interior walls and ceilings, for example, may cause significant decreases in value that will not be covered under the master policy. The borrower may not have sufficient funds on hand for these repairs, leaving pledged collateral at risk. Your borrower must purchase this coverage.

MY BORROWER DOESN’T HAVE “WALLS-IN” COVERAGE AND IS VERY ANGRY THAT THIS COVERAGE IS REQUIRED. HOW DO I HANDLE THIS SENSITIVE SITUATION?

The borrower really shouldn’t view the situation this way. If the borrower has no “walls-in” coverage, then their interior airspace and personal belongings are not protected. You are providing them a great service by letting them know about this very real risk. Let them know that they should contact their insurance agent immediately to protect their interior airspace, valuable possessions, and liability for accidents in their home. If your borrower is upset about this requirement, ask them if they truly would want to leave their interior space at risk to damages often caused by violent storms and other unforeseen calamities. It’s really not a good decision to open themselves up to this risk.

WHY HAVEN’T I BEEN ASKED TO PROVIDE THIS COVERAGE BEFORE?

Requirements for “walls-in” coverage are not new, but recent changes in the mortgage and risk protection industries have made it necessary for AmTrust to include reviews of these coverage requirements on 100% of its loans instead of the randomly assessed quality control efforts that previously addressed this risk.

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