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I live in the United States and have a mortgage for my condominium.

After 10 years under my current policy, I suddenly received a letter from the lender, saying "A review of our records indicates we have no evidence of a current Condominium Association Master Policy on your property. As you know, under the terms of your mortgage/deed of trust, hazard insurance coverage is a requirement."

They then say that if I do not send them proof of the Condo Master Policy (over 100 pages, by the way) with proof of insurance, then they will forcibly buy hazard insurance for me and take it out of my escrow account.

I already have home owner's insurance.

But does the mortgage lender have a right to even make that statement?

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    Yes, they do. If the mortgage contract you entered requires hazard insurance, you have to have it. I you don't have it, they buy it for you (and them as the note holder). You signed a contract, you have to fulfill the terms of it. Just curious why you think this is wrong of them? – EkoostikMartin Apr 22 '15 at 20:22
  • @EkoostikMartin: As I mentioned, I already have home owner's insurance through my condo HOA. What is the business of the lender to make a claim that they will forcibly buy insurance for me? – stackoverflowuser2010 Apr 22 '15 at 20:39
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    They will do the same with an auto loan if you don't have full coverage, or prove that you do. They may even dictate the deductibles. It's their money and they want the asset insured so they don't take a loss. – AbraCadaver Apr 22 '15 at 20:44
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    @stackoverflowuser2010 The Condo Hazard insurance is held by the condo association, not by you; it's separate from your homeowner's insurance. – Joe Apr 22 '15 at 20:46
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    @stackoverflowuser2010: when you say, "does the lender have the right?" and "what is the business?", are you asking whether this term is really in your contract, or are you acknowledging that the term is in the contract but questioning whether the contract is legally enforcible? Neither one sounds to me likely to work, unless they genuinely have made an error as to the terms of your contract, but they are different objections and so they lead to different things you should look into, in the event the HOA doesn't have insurance. – Steve Jessop Apr 23 '15 at 0:23
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Yes, typically a condominium mortgage would require this policy - which is not the same as your homeowner's insurance. It is required for any Fannie Mae loan; see their policy on the subject, and other mortgage holders typically have similar policies.

AOL has a good explanation of the difference. What it largely comes down to is that in a condo, you don't own the structure; you own the interior, instead. So your condo homeowner's insurance only covers what's inside your condo, largely. The actual building itself, plus risks from (for example) someone slipping and falling in a common area (like the stairs or elevator), is covered by insurance maintained by the HOA (home owner's association, or similar body responsible for the maintenance of the property itself and any common areas).

You need to contact the president of your HOA in order to find out whether they are current on their insurance. The odds are pretty good that they are - or every other owner would have the same problem - but your lender probably just doesn't have the appropriate information; maybe they did an audit and their paperwork is missing. This happened to me after I refinanced; they "couldn't find" our homeowner's insurance policy a year or so later, and I had to prove we still had it (though it was the same). You will probably just need to fax them something.

If they aren't, though, you'll need to make sure they get current, and that could possibly involve legal action if they're unable to (for example, if enough owners are behind on their condo maintenance fees).

Regarding why they are contacting you and not the condo board:

the answer is in the question:

They then say that if I do not send them proof of the Condo Master Policy (over 100 pages, by the way) with proof of insurance, then they will forcibly buy hazard insurance for me and take it out of my escrow account.

Because you don't want to be forced to pay an extra couple of hundred a year you will contact the management company for the board, and get the paperwork, and send it to them. If the management company is unresponsive you will complain to the board and they will eventually respond. The lender doesn't have any leverage with the management company, plus your labor is free.

  • Thanks for the writeup. Are you saying that "Condo hazard insurance" is the insurance that covers the exterior of my unit? If so, then why am I in the loop of this at all? Why doesn't the lender contact my HOA? – stackoverflowuser2010 Apr 23 '15 at 1:01
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    That's the insurance that covers the structure itself and the other common areas. You're in the loop because it's your responsibility to the lender: in the mortgage contract you signed, you agreed to ensure it was always covered. The lender didn't sign a contract with the HOA, it signed it with you, right? So their only recourse is you. You then have to go after the HOA, who you presumably also signed a contract with. – Joe Apr 23 '15 at 14:53
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If you are talking about a single family house the lender dictates that hazard insurance is required. This type of policy is generally easy to buy. If covers their investment, and it also covers the stuff in your house, and may have liability coverage in case somebody falls in your home.

When dealing with some townhouses, and all condo/co-ops there are two parts of the insurance equation. There is the part of the structure owned by you, and the common property. The lender wants to make sure that their entire investment is covered. That is why they want to see proof of the master insurance policy. They generally only want to see a couple page proof of insurance. This describes the community (community X in county x in the state of Y) and the dates of coverage,a and some basic info. They may even require that the proof be sent from the insurance company, or from the management company. All of this is in addition to the coverage for your stuff, and liability.

The fear for the lender is that due to a problem with the roof you get flooded. Without the master policy there will not be money for the roof, and the condo becomes worthless.

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