brand new townhouse, confused about HOA insurance

Question

We bought a brand new townhouse from a developer. It is a small complex with 2 townhouses (single bulding, sharing wall) and a detached single home. They are all in the same condominium which was built 6 months ago. Because this is brand new, we had to form our own association and decide who will be officers like president, treasurer, etc and it did not have HOA hazard insurance. The other 2 units are bought using cash and only our unit was purchased through mortgage.

My mortgage company changed and now they are asking to provide HOA hazard insurance. We only have homeowner insurance. Questions:

1. Is homeowner insurance different from HOA hazard insurance? In my research, I think in townhouse setting, homeowner insurance only covers what is inside my unit whereas HOA hazard insurance covers shared structure such as exterior walls and roof. is this correct?
2. If homeowner insurance is different from HOA hazard insurance and I am required to buy one, do I have to purchase HOA hazard insurance as part of our HOA entity and convince the other 2 unit owners to pay their share? Or if they refuse, do I have to pay for the other 2 units' share of premium or can I just pay for my share? What happens when we do need to make insurance claim due to say roof damage in this case?
3. My mortgage company estimated if they were to buy the insurance for us, we would be charged $6500 annual premium which feels very expensive compare to my homeowner insurance ($800 premium with 500k dwelling coverage, 360k personals property, etc). I called my insurance agent and they don't do HOA insurance and when we called state farm agent we know of, he doesn't deal with it either. Is there a good website where we can compare premiums?

Answer 1

I have lived in three communities: a condo community; a townhouse community; and one of single family homes. All had an HOA.

Is homeowner insurance different from HOA hazard insurance? In my research, I think in townhouse setting, homeowner insurance only covers what is inside my unit whereas HOA hazard insurance covers shared structure such as exterior walls and roof. is this correct?

You need homeowners insurance. That covers everything you own. In the case of a condo or apartment that is everything inside the walls. In the case of the townhouse that includes the walls and the roof. In the case of a typical single family house that includes the walls, roof and the land. Now it is possible that a townhouse can also own some land just outside their walls.

The HOA hazard insurance covers everything else. For the condo that will include the rest of the building: stairs, hallways, elevators, roof. For all three it will be the common property. That can include the playground, tennis courts, pool, parking lots, private roads, hiking trails and even acres of empty land.

The HOA insurances is needed to protect those items in case of a fire, or some other issue. It is also required to protect the HOA if somebody gets hurt on that common property.

If homeowner insurance is different from HOA hazard insurance and I am required to buy one, do I have to purchase HOA hazard insurance as part of our HOA entity and convince the other 2 unit owners to pay their share? Or if they refuse, do I have to pay for the other 2 units' share of premium or can I just pay for my share? What happens when we do need to make insurance claim due to say roof damage in this case?

The HOA buys the policy. The budget committee creates the budget for this and all the other HOA expenses. Those could include a fund to prepare for future repairs, a lawn service, a lawyer to review legal documents. The board votes on the budget, and then bills the members monthly, quarterly or yearly depending on what is in the HOA documents. If they don't pay, then the lawyer gets involved. The final result could be liens on the property.

My mortgage company estimated if they were to buy the insurance for us, we would be charged $6500 annual premium which feels very expensive compare to my homeowner insurance ($800 premium with 500k dwelling coverage, 360k personals property, etc). I called my insurance agent and they don't do HOA insurance and when we called state farm agent we know of, he doesn't deal with it either. Is there a good website where we can compare premiums?

The mortgage company always requires coverage. In the case of a condo and townhouse they always want to see proof of HOA coverage. With a single family home they sometimes want to see this coverage. In a typical HOA with hundreds of units the HOA office or management company can get you the policy information. Every mortgage company will force the borrower to either prove they have coverage or the lender will make other arrangements that cover their risk. There is no guarantee that it will be cheap or cover everything.

The board will need to get this coverage. Not all insurance companies provide this coverage. You should reach out to other HOAs in your area to get a list of possible companies. Though the cost per unit could be high just because of minimums and the small number of units.

This ownership structure is a lot of work for just three units.

Answer 2

"My mortgage company changed" - go back to your original mortgage documents and see if HOA hazard insurance was required.

Just because your mortgage changed hands or the servicer changed, does not mean that new requirements can be imposed. That said, maybe the original mortgage lender required HOA hazard insurance but did not enforce the requirement.

Also, do the current HOA agreements require the HOA to hold insurance, including hazard insurance? If so, hold the HOA to its agreement. If not, and if you cannot convince the HOA board to buy hazard insurance, your best option may be to sell your townhouse. Paying the HOA hazard insurance on your own is unreasonable.