HOA as loss payee for townhome

Hello Everyone,

My wife and I purchased a townhome this year and two months ago received a scalding (although boiler plate) notice from our HOA demanding that the association be added as a "Loss Payee" on my homeowners insurance policy. If we failed to comply another owner would insure the property and I would be expected to reimburse them plus court costs and X% interest.

Initially I found this odd as our purchase was fee simple, and the HOA is NOT responsible for maintaining the exterior of the unit. Against my better interest but wanting to comply I contacted my insurance company and asked them to add the HOA. They responded they could not, as the only parties with an insurable interest in the property were myself and the primary lender. They did offer to add them as "an additional interest" or "an additional insured".

With that answer I contacted the secretary to hear here side of things. Her points were as follows:

1. She was adamant that only a "loss payee" would suffice.

2. She confirmed the HOA does not own any of the insured structure, nor is the association responsible for maintaining any of it.However they do have an interest in how it looks.

3. Although I own the property I do not own the surrounding land.
-Right and my homeowner's policy doesn't cover that.

4. What if the home was a total loss while I was out of the country? The neighbors would have an eyesore and would want to clean it up pronto.
-Pretty sure any one party listed as a "loss payee" can't unilaterally receive anything without the consent of the others.

5. We're worried owners might not rebuild.
-What I was thinking all along great.

After that I called the insurance company again to see if they would add the HOA as a loss payee. Again they refused as the HOA does not have an insurable interest it cannot be a loss payee.

I've reached out to a lawyer at this point. He responded that legally they cannot be a loss payee, and no one else can take out an insurance policy on my home as in both cases they do not have an insurable interest.

I'm open to any and all advice as I don't see a solution other than shopping for insurance carriers who might neglect the insurable interest aspect of things.

Thanks!

Matt, your insurance and your attorney are correct In fact I just went through a similar thing with one of the Condo HOAs. They wanted to insure each unit against earthquake loss. (Not the building, but individual units to cover a very large deductible) They couldn't do it because each unit is individually owned and the HOA can't insure it. Your board will soon find out that they can't possibly buy an insurance on your property.

Since you already contacted an attorney just ask the same attorney to write a letter to your association.

If they need to be on as a loss payee for whatever reason I'm ok with it, it's just not a single person can give me a valid reason other than those I listed above previously. And it's pretty clear that without an insurable interest (Of which none of the above are) they can't be added.

I want to be in compliance but simply can't. I don't believe they are out to get me, and I'm certainly not trying to leave them in a bind. But it essentially seems they want to create a contract which would be unenforceable on their behalf, and my carrier isn't willing to do it.

The law by state seems to be pretty strange in this regard. I found a 2007 NY ruling that stated that HOA's can require a homeowner to add them as an addiitonal insured, but insurance carriers do not have to honor a homeowners request to add the HOA.

It just seems as if my HOA is trying to act as an HOA and condo association at the same time.

perhaps the sec. means a "loss assessment rider" which many agents do not even understand (about $30-35 / year)