Why would an HOA master policy fail a lender warrantability review?

The Fannie Mae Selling Guide, section B7-3, requires the master property policy to cover 100 percent of the replacement cost of the project improvements. A policy written on actual cash value, which deducts depreciation, does not meet that standard, and an older building can be dramatically underinsured on an ACV basis.

This is the most fundamental warrantability gap, and it often signals the account was placed in a generalist habitational package rather than a dedicated community-association program.

For projects over 20 units, the Fannie Mae Selling Guide, section B7-4-02, requires a fidelity or crime bond of at least three months of aggregate assessments plus reserves, extended to any managing agent that handles funds. A bond set to a flat legacy number, or one that has not kept pace with growing reserves, or one that omits the managing-agent endorsement, fails the review.

If any project building sits in a FEMA-designated Special Flood Hazard Area, the Fannie Mae Selling Guide requires flood insurance equal to the lesser of the National Flood Insurance Program maximum or the building replacement cost. Because FEMA revises flood maps over time, a building can move into the high-risk zone between reviews, so confirm each building against the current map.

The project needs a general liability policy covering the common elements, commonly at one to two million per occurrence. Reviews also look at whether the master policy names the correct insured, whether the deductible is within acceptable limits, and, increasingly for taller Florida buildings, whether structural inspection and reserve documentation is current.

The practical takeaway: these gaps are predictable, and they are exactly what stalls a unit sale at the lender insurance review. Running the master policy against them before a sale is under contract avoids a last-minute scramble.