Can an HOA use force-placed insurance? Force-placed insurance is when
the banks buy an insurance policy for homeowners to protect the bank's
investment. I'm wondering if an HOA can do the same thing if owners fail
to insure their units? The HOA needs a way to protect itself.
: Banks are able to “force-place” insurance because of two important conditions: (i) the
loan agreement gives the lender authority to do so and (ii) banks has
an insurable interest in the property because the home is collateral for
No Authority to Purchase
Unless an association's governing documents grant authority, boards
cannot purchase insurance for an owner and charge back the premium to
the homeowner. Even if the governing documents allow it, the
association does not have an ownership interest in the unit. Without an
insurable interest, it's unlikely a carrier would sell them a policy.
Assuming an association could purchase individual policies for owners,
it creates an administrative problem for the association. To purchase
insurance for owners who fail or refuse to purchase their own insurance,
the board would have to monitor every owner's insurance.
If there are 100 units in the development, there are 100 different
insurance policies to monitor with 100 separate expiration dates to
calendar and track. Since homeowners could let their coverage lapse at
any time during the policy term by simply missing one or more monthly
installments, the board would need to monitor their insurance daily and
immediately purchase coverage for the owner when it lapsed.
Because force-placed insurance is very expensive, the homeowner has
incentive to buy his own insurance as soon as the costly back-billed
premiums hit. This creates yet another task for the person monitoring
the insurance. Once the homeowner buys his own insurance, the
force-placed coverage must be immediately removed and any unused
premiums refunded to the homeowner.
insurance is so complex that even lenders don’t administer their own
programs; they rely on third-parties to oversee them.
Instead of buying insurance for individual owners, associations should consider
amending their governing documents to require owners to carry insurance.
To protect the association from administrative headaches and potential
liability, the amendment needs to exempt the association from the duty
of monitoring the provision. ASSISTANCE
: Associations needing legal assistance can contact us
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