f. Special Considerations with Homeowners Associations

Condominiums and many townhouse homeowners associations (HOAs) maintain blanket or master policies on common areas, including common mechanical and structural elements.  The limits of coverage should be described in the policy, and may also be referred to in the organizational documents. 

Lenders should be aware that policies maintained by some HOAs may not provide adequate coverage.  They may protect only the shell of the structure.  These “studs out” policies do not cover

·   interior walls

·   flooring

·   plumbing or electrical fixtures

·   cabinets

·   HVAC equipment

·   appliances, and

·   other items considered part of the real property.

Carefully review the terms of each blanket policy, or confirm with the HOA that adequate coverage is in effect (and check periodically for any changes in coverage).  If coverage is inadequate, the homeowner can be held responsible through the terms of the loan instruments, for maintaining coverage on the portions of the real property not covered by the master policy.