New Fannie Mae rules introduced in late 2009 indicate that associations with 20 or more unit are required by regulation to have fidelity bond coverage as part of the association's insurance program. While it may be tempting to omit this coverage for smaller associations I would recommend that ALL associations carry it. The reasons are simple: 1) the coverage does not cost that much; and, 2) even in good economic times volunteers responsible for the cash at all manner of non-profit organizations occasionally do clean out the treasury and head for places unknown!
Fidelity bond coverage protects your association's day-to-day and reserve funds by reimbursing the association if someone takes the money and runs. While Fannie Mae has rules about how much coverage an association should have I'll make it simple; think of the maximum amount you might accumulate in both day-to-day and reserve accounts over the years before you have a big expenditure like a re-roof - the highest total amount should be your coverage limit.
Board members should try to visualize what life would be like if the association's treasury were cleaned out and they had to start over from scratch. This is not a pretty picture for any association! All the more reason to make sure your association has fidelity bond coverage and in the right amount. Give this item some scrutiny during your annual review of the association's master insurance policy.
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Good advice, HOA Guy. This year, (2010) I was denied a refinance because the credit risk department and investors of my now ex-mortgage servicer required more than three times the amount of fideltity bond insurance than was carried by my HOA. The HOA added insurance coverage and it indeed didn't cost too much to add the additional coverage. Of course, the HOA or the appraiser had no idea that the amount of coverage required would more than three times than what was carried. The HOA was well within and in full compliance with Colorado state law. But some people have their own rules. Of course, if we could keep politicians' thumbs out of the home financing pie, we wouldn't be in this "mortgage crisis" mess. I went shopping elsewhere and found a mortgage originator who was able to obtain a refinance at 3.875% for 15 years, fixed rate. The mortgage was to a competetor of my now ex-mortgage servicer. So, it turned out to for the better, because that rate was way better than what my orginal servicer offered me. They lost a customer, (*snicker*) but it was worth it for me.ReplyDelete
Good advice.. It is good to know that Fidelity bond coverage protects your association's day-to-day and reserve funds by reimbursing the association if someone takes the money and runsReplyDelete
How about a lender who is asking for a million dollar bond to protect $40k in reserves. this seems excessive to me.ReplyDelete