How much fidelity bond coverage does an HOA need?

A fidelity or crime bond protects association funds against theft or dishonest acts by anyone who handles them: board members, employees, and the management company. Two authorities converge on the same math.

The Fannie Mae Selling Guide, in section B7-4-02, requires fidelity or crime coverage for condominium and co-op projects of more than 20 units, in an amount at least equal to three months of aggregate assessments on all units plus the association reserve funds. California Civil Code 5806, part of the Davis-Stirling Act, sets a parallel floor: coverage equal to the combined reserves plus three months of total assessments.

Take an association with 120 units and monthly assessments that total, across all units, a mid five-figure to low six-figure sum per month, plus reserves in the mid six figures. Three months of aggregate assessments plus the full reserve balance is the floor, and it moves every year as reserves grow.

That last point is where associations fall out of compliance quietly. Boards tend to set the bond to a flat number the prior agent chose and leave it there. As reserves build over several years, a static bond silently drops below the required amount. Recompute the required figure at each renewal against the current reserve balance and current assessment roll.

If a management company handles the operating and reserve accounts, the bond has to be endorsed to cover that agent and its employees. Both the Fannie Mae standard and California Civil Code 5806 require this extension where a managing agent touches the funds.

This is the single most common fidelity gap. The association carries a bond sized correctly for its own board and staff, but the managing agent, who actually has custody of the money, is not covered. Confirm the management company is named or that the policy carries the managing-agent endorsement.

The Fannie Mae requirement carves out projects of 20 units or fewer. That does not mean a small association should skip the coverage, since theft exposure exists at any size, but it does mean the warrantability trigger does not apply. California Civil Code 5806 still applies to covered California associations regardless of the 20-unit line, so confirm the state requirement separately from the lender requirement.