FHA Fidelity Insurance Requirement

Property managers and board members have routinely been receiving “mortgagee questionnaires” from the lenders of potential purchasers, asking the association a variety of questions ranging from reserves, number of delinquent accounts, number of investor owners, and amount of casualty, liability, and fidelity insurance coverage. When filling out this form, many Ohio condominium associations have been asking our office if they possess sufficient fidelity insurance to comply with Federal Housing Administration ("FHA") requirements. Currently, FHA requires sufficient fidelity insurance to cover all of the money in an association’s reserve account, plus three (3) months worth of assessments. For many associations that have been planning and saving for reserves, this amount may be significant, so it is important to verify the amount in the association’s reserve accounts and determine the exact amount of the association’s current fidelity insurance coverage from the association’s insurance policy or agent.

FHA also requires that the association maintain this fidelity insurance for all officers, directors, and employees of the association and all other persons handling or responsible for funds administered by the association. This includes property managers and bookkeepers. Thus, in addition to verifying the dollar amount of coverage, the board should also verify who is covered by the policy. Regardless of whether or not your association desires to be FHA eligible, Kaman & Cusimano strongly recommends that all associations have a Managing Agent Rider (MAR) attached to its fidelity insurance. This will help to ensure that the association’s assets are adequately protected.

For any potential purchasers to close on an FHA insured loan, the association must be able to demonstrate that it maintains this level of fidelity insurance. If the association’s fidelity insurance does not meet FHA requirements, the board must decide whether or not it should raise the association’s coverage, by balancing the increased premiums with the possibility of FHA insured financing.

It is very important to fill out the mortgagee questionnaires accurately and correctly to avoid any disputes or allegations of impropriety in the future. Again, the association must have enough fidelity insurance to cover all of the money in an association’s reserve account, plus three (3) months worth of assessments. If you have any additional questions regarding fidelity insurance, or if your association would like to apply to be on the FHA list of approved condominiums, please contact Kaman & Cusimano for more information.

Ohio Planned Community Act Now Effective!

On Friday, September 10, 2010, the Ohio Planned Community Act became effective. The law, which established Ohio Revised Code Chapter 5312, provides for the statutory framework of the governance and operation of Ohio’s planned communities. Similar to the statute enacted for condominiums, Ohio’s community association owners now enjoy significant consumer protections designed at preserving their communities and property values.

Also important for community associations is that the new law requires that all community association bylaws or code of regulations be recorded within one hundred eighty (180) days after the law became effective. If your association’s bylaws or code of regulations are not recorded, please contact our office immediately for more information regarding the easiest and most cost effective way for your association to be in compliance with the new law. More importantly than the simple act of recording, the Bylaws or Code of Regulations must reference the Declaration and incorporate proper language so that it appears in the chain of title of all homes within the community.

Kaman & Cusimano, LLC Service Option Client community association board members recently received a “special edition” Kaman Report detailing all of the important components of this new law. This includes information on the new laws governing reserves, cost of collections and enforcement, board powers, and records reviews. If your community association is not a Kaman & Cusimano, LLC Service Option Client, please Contact Us for more information on how to receive this important edition of the “Kaman Report.”

A full copy of the law is available at http://codes.ohio.gov/orc/5312