What are the insurance requirements for condominium projects?

The Condominium Project must be insured to FHA standards as well as any applicable state and local condominium requirements.

Hazard: The Condominium Association must have a master or blanket Hazard Insurance policy in an amount equal to 100 percent of the insurable replacement cost exclusive of the Condominium Project.

HO-6 (Walls In): Required when the Master policy does not include interior unit coverage.

Liability: Must include comprehensive general liability coverage for the entire Condominium Project, including all Common Elements and areas, public ways, and all other areas that are under its supervision, in the amount of at least $1 million for each occurrence.

Flood: Coverage must be equal to the replacement cost of the covered improvements or the National Flood Insurance Program (NFIP) maximum per unit multiplied by the number of units, whichever is less.  If buildings are located in a Special Flood Hazard Area (SFHA), the Mortgagee must ensure that the Condominium Association obtains flood insurance.

Fidelity Bond/Fidelity Insurance: Required for condo projects with more than 20 units (3 months’ aggregate assessments on all units plus reserve funds, or the minimum amount required by State law).
Separate Fidelity Insurance for the Management Company is required if it is not named in the Association’s policy as an agent or insured of the Condominium Association.   The insurance must cover all officers, directors, and employees of the Condominium Association and all other persons handling or responsible for funds administered by the Condominium Association.

 
For case numbers assigned October 15, 2019 and after, additional information regarding Condominium Project Insurance Coverage, please refer to:   Handbook 4000.1, Sections II.A.8.p.11.(E)(1) and II.C.2.c.vi. available at: 
https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh 

For case numbers assigned prior to October 15, 2019, information is available in:
  • Mortgagee Letter (ML) 2011-22 Condominium Approval Process for Single Family Housing – Consolidation and Update of Approval Requirements and the attached Condominium Project Approval and Processing Guide provides the requirements and procedures for obtaining FHA condominium project approval.
  • ML 2012-18 Temporary Approval Provisions for FHA Condominium Project Approval provides temporary condominium project approval guideline changes to address current housing market conditions.
  • ML 2015-27 Additional Temporary Approval Provisions for FHA Condominium Project Approval
  • ML 2016-15 FHA Condominium Project Approval – Owner Occupancy Requirements modifies the Condominium Project Approval and Processing Guide, attachment to ML 2011-22, in order to implement the Housing Opportunity Through Modernization Act of 2016 (HOTMA) requirements and establish the required owner-occupancy percentage that must be met for purposes of FHA project approval.
Note: The Temporary Provisions in ML 12-18 and ML 15-27, as modified by ML 2016-15, are effective until HUD publishes and implements the Final Rule of Condominium Project Approval through publication of the Condominium Project Approval Section of HUD Handbook 4000.1, as extended by ML 2017-13.  Mortgagee Letters are available at: 

For more information regarding condominium projects refer to:

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-03928