FHA Condo Approvals – Employee Dishonesty Insurance

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FHA Condo Approvals – Employee Dishonesty Insurance


Working with condominium projects, probably the most common item that needs to be addressed prior to submission is the coverage of the Employee Dishonesty/Fidelity Insurance.

For all new and existing projects of 20 or more units, the HOA (not the property management company) must provide a policy that covers employee theft.  If there is a property manager, the policy must include coverage of the management company.

In reviewing the certificate of insurance, I look for two main things:

1.     Is the coverage sufficient?

2.     Does it specifically name the property management company?

The required coverage is easy enough to check.  HUD requires that it be at least 3 months aggregate of the common charges plus the amount held in all reserve accounts (not operating accounts).

Thus, for a project with annual common charges of $200,000 and $50,000 in reserves at the time of submission, the minimum coverage of the Employee Dishonesty policy would be $200,000/4 + $50,000 = $100,000 (nice round numbers, right?)

I bolded “at the time of submission” because I once checked this coverage at the time the original bank statements were provided to me.  It took over a month to collect the rest of the documents.  Because HUD requests bank statements to be no more than 30 days old, I had to collect new bank statements.

In my haste to submit the file, I didn’t re-check the coverage amount against the new bank statements.  The HOA had made several deposits into the reserve account and the coverage was no longer sufficient.  The file was Rejected for this reason but it was quickly rectified.

If there is a property management company, the Certificate of Insurance must specifically name the company.  It is not sufficient for the Certificate to say “includes property manager”.  It must say something like “XYZ Management is designated agent” or “XYZ Management is additional insured.”

In Connecticut, it is state law that condominium employee dishonesty coverage includes the property management company but HUD still wants it spelled out on the Certificate.

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The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA.  We have assisted nearly 200 condominiums and we can help your association.


ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.


Please contact us with any questions regarding FHA or VA condominium project approvals.  You can email me at askeric@readysetloan.com or call me at 404-433-4565. I will be happy to answer any of your questions.


FHA/VA Condo Approval Specialist

404-433-4565 Cell Phone

860-644-3772 Fax Phone

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 Check out our article in Common Interest magazine on page 19!

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Dan Hopper
Keller Williams Realty Downtown LLC - Denver, CO
Denver Realtor / Author / Advocate/Short Sale

Great information, Eric.   Thanks for explaining some of the details involved with the FHA approval process on these HOA complexes.  There are times that we just do not completely understand why some are not approved, and we are finding out that it has to do with insurance!

Jul 31, 2013 01:11 AM #1
Edward & Celia Maddox
The Celtic Connection Realty - Queen Creek, AZ

Thanks for the information on FHA condos.  Good luck in 2013.

Jul 31, 2013 02:17 AM #2
Oscar Vasquez
Fillmore Home Value Check - Fillmore, CA

Best info for the day. Thanks

Jul 31, 2013 02:22 AM #3
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Eric, this makes it clear to me that Condo Complexes need to be talking to you or someone like yourself when applying for FHA Condo Certification.  There are so many things that can be overlooked and cause needless delays and aggravation.

Jul 31, 2013 02:38 AM #4
Team Honeycutt
Allen Tate - Concord, NC

Thank you for the information on FHA condo loans. They seem to be quite complicated. We have a lot of complexes in our area that don't qualify for FHA loans.


Jul 31, 2013 05:59 AM #5
Bill Reddington
Re/max Southern Realty - Destin, FL
Destin Florida Real Estate

So many i's to dot anymore. Insurance in case an employee steals something. What a world.

Jul 31, 2013 07:30 AM #6
Jon Sigler
Keller Williams - Greater Hartford - South Windsor, CT
South Windsor Homes for Sale 860-306-8029

Eric, congratulations on the feature!  You know your business!

Jul 31, 2013 11:01 AM #7
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Outstand job with the post and great that it was featured. You offer such valuable information and information that all loan officers and real estate agents can use.

Jul 31, 2013 11:25 AM #8
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

It is becoming more an more risky for buyers to purchase a condo... The management companies will not provide this information prior to an offer.. and they typically won't provide the informatio to the real estate agent after the contract is signed.  The lender has to get this informaiton and in the meantime, the buyer may be spending money on the inspection and appraisal.  By the way what is considered a "common charge."

Jul 31, 2013 11:51 AM #9
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

Great blog Eric! Congratulations on a feature!

Great to see you here on Active Rain;)


p.s. I don't want even to comment on HOA vs financing~ too paintful topic.....

Jul 31, 2013 04:48 PM #10
Michelle Carr-Crowe Just Call 408-252-8900 Top 1%!
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Dang, it is getting harder and harder to get condos covered and FHA approved.

Jul 31, 2013 04:49 PM #11
Jane Chaulklin-Schott
TEAMCONNECT REALTY - (407) 394-9766 - Orlando, FL
TeamConnect Luxury Homes - Orlando, Florida, 32836
Eric, interesting and important information. Deserved to be featured. Congratulations!
Jul 31, 2013 07:39 PM #12
Marco Giancola
Beachfront Realty - Miami Beach, FL
Realtor (305)608-1922, Miami Beach Florida

Hi Eric-good topic-down here in condolandia I come across this daily.

Jul 31, 2013 08:31 PM #13
ReadySetLoan Condo Approval Team
ReadySetLoan Condo Team LLC - South Windsor, CT
The FHA/VA Condo Project Approval Specialists

Joan- "common charges" are the monthly condo dues that the unit owners pay.

Thank you for the comments everyone!

Jul 31, 2013 09:34 PM #14
Michael Gendreau
Edina Realty - White Bear Lake, MN
Edina Realty

I recently ran in to this problem and we had to have the HOA remidy it

Jul 31, 2013 09:50 PM #15
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Not enough associations are getting this done or completing the paperwork correctly. It's a real problem in my area.

Jul 31, 2013 11:15 PM #16
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