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Condos, Binders and "Walls In" Coverage

Author: Bill Wilson

The VU "Ask an Expert" service has been made aware of a number of requests from the lenders of condo unit owners who want to be named as mortgagees on the association master policy. In addition, they are demanding that the binder specifically state "Walls In" coverage is provided.


  

Recently, we received the following "Ask an Expert" question:

Question"We are getting many requests now from banks for binders for condo unit owners. Companies do not list banks as mortgagees on master policies so what should we be providing? Also, the banks are now asking that the binder specifically state 'Walls In' coverage is provided. We advise them that coverage is provided per terms of the association's by-laws but they are adamant."

AnswerPresumably, the first issue above involves unit owner lenders who want to be mortgagees on the association master policy. If so, this article addresses this issue:

"Condos and Additional Insureds"

 

On the second issue, “Walls In coverage” is not an insurance term. The policy is what it is…it provides coverage for the property specified by the bylaws. For example, this is what the ISO HO 00 06 05 11​ says:

 

SECTION I – PROPERTY COVERAGES
A. Coverage A – Dwelling
   1. We cover:
      a. The alterations, appliances, fixtures
         and improvements which are part of the
         building contained within the "residence
         premises"; 
      b. Items of real property which pertain
         exclusively to the "residence premises"; 
      c. Property which is your insurance
         responsibility under a corporation or
         association of property owners agreement;
         or 
      d. Structures owned solely by you, other
         than the "residence premises", at the
         location of the "residence premises".

Unless you have laws in your state that govern this, what is required to be covered by the unit owner is established in the CC&Rs of the condo association. That’s why the ISO condo policy is written so broadly.


I just read your article in the 
VU newsletter, and I wanted to share something with you that I came across recently. In looking up FANNIE MAE lender guidelines, I noticed that they worded the condo requirements in an odd way, which is probably why I ended up with a couple of calls similar to the one you published.

If you look it up, it will be under B7-3-05 Hazard Coverage for Units in Project Developments. The sentence in question states: "If the master or blanket policy does not cover the unit's interior, then the borrower must obtain a 'walls-in' policy, commonly known as an HO-6 policy."

I don't know if you have any contact at FANNIE MAE and if you would be able to get them (and quite frankly probably FREDDIE MAC as well) to reword that section and remove the reference to "walls-in" to avoid the back-and-forth with lenders.

Claire P. A. Pantaloni, CIC, CISR
Industry Affairs Director
Insurance Agents & Brokers Service Group -serving PA, MD & DE


Great catch, Claire. It could be that the lending industry has picked up on this language and are now asking for this without any real understanding of how the coverage is typically provided by HO-6 policies. No doubt there is somebody in a dimly lit room in a government building who came up with that sentence and now it's making its way through the lending industry and into the insurance industry. I'll see what we can find out. In the meantime, Big "I" members will have to take on another educational task...hopefully this article will help.

Last Updated: October 31, 2012

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