HOA Insurance, Incorporating & Registering with the Secretary of State

Recently elected to the BOD of our HOA. The previous board had been inactive for the past five years. Having reviewed documents from the previous board, learned our HOA was once registered with the TN Secretary of State and was insured. The insurance has lapsed and the HOA is no longer registered with the Secretary of State. We are a small association consisting of 18 homes located in TN. We have no common area that is deeded to the HOA. However, there is a equestrian riding trail that circles the properties, trail fence and entrance signage that the HOA is responsible to maintain along with street lights and water to maintain the entrance landscape. Does it make since to register again with the Secretary of State and is there a need to seek insurance for the HOA. What if any are the benefits. Thanks for any input and sharing your experiences Thank you!

In some states if your HOA is not registered you potentially cannot fine for HOA violations or go after owners for non-payment of their HOA dues until you do register and are in compliance with your State.

Your governing documents might require insurance and some states in their HOA Laws require certain insurance to be carried. You need to check your governing documents and state laws. The insurance protects the Association BOD (via DOD insurance) and the Association (via HOA property insurance) from potential financial loss mainly in case of property damage/loss or a lawsuit. If someone is injured on common area property then the insurance company is who would help fight any legal battles or pay compensation for the injured party. If you do not have insurance then the owners will be out of pocket which could be a substantial amount in some cases. If it is required via your documents or state laws and your Board failed to provide, then the Board members could end up footing the cost of injury or lawsuit as they failed to perform their duty to protect the association.

Hi Leslie:

Here is a document put together by TN State government for HOA's:
https://tn.gov/assets/entities/tacir/attachments/2015Tab_9HOA.pdf

TN is currently under a Horizontal Property Laws for single family HOA's. The Community Associations website has the following link:
http://communityassociations.net/tennessee-horizontal-property-act/

If you are a Condo the link for those laws are here:
http://communityassociations.net/tennessee-condominium-act-of-2008/

There is potentially a bill that is being considered to add a Homeowner Association Act in TN. The bill can be read here:
https://trackbill.com/bill/tn-sb405-real-property-as-introduced-enacts-the-tennessee-homeowners-association-act-amends-tca-title-66/1136580/

LOL ... just some light reading which may answer many of your questions in the future. If your association is interested in the bill being proposed, then you all may want to contact your legislators to encourage them to pass. I have not read it yet, but it possibly is similar to my state and others who have these statutes.

Good questions but I sometimes think an insurance policy is a magnet for hungry personal injury lawyers. Without that pot of gold sitting there, would a lawyer take on a case where even if he wins there will be no one handing him a check for his efforts? Is he going to pursue a case where the pay-off is a deed to a riding trail instead of a million dollars in cash?

Nope ... payoff is potentially from 18 homeowners. TN per the gov doc link posted above states starting on page 12:

Most HOAs in Tennessee are not required to have insurance

Like most states, Tennessee does not require HOAs for single-family residential communities to carry property or liability insurance. Only thirteen states do. However, most states require condominium HOAs to carry both property and liability insurance. Tennessee requires this only for condominiums built after January 1, 2009. Older condominiums don’t have to carry either. Without insurance, HOAs risk being unable to cover large, unexpected expenses and may not be able to collect sufficient funds from their residents either.

HOAs without property insurance may not be able to pay for repairs or replacements when disasters occur, and the regular assessments that homeowners pay to HOAs may not be adequate to pay for insurable losses. In those cases, homeowners might have to pay a special assessment to the HOA or leave the common property unrepaired. Cities could decide to step in and repair common property to remove health and safety hazards but would likely assess homeowners for the expense. Without liability insurance, homeowners are responsible for paying liability claims against their HOA. The HOA would be responsible for paying the claim, but HOAs typically do not have monetary reserves that are not already dedicated to expected expenses. Like with property damage, HOAs would likely have to charge homeowners a special assessment or increase the amount of the regular assessment. Either way, homeowners would pay liability claims that could have been covered by insurance.