Over the years Orion has helped our brokers do many loans on condominiums for clients, and brokers tell us that your borrowers often wonder about insurance for condo owners: Some transactions do not have lender required insurance policies and some do. Orion’s management and our AEs believe that it is good for our clients to know the reason so that you can keep your borrowers informed.

Recall that condos are joint ownership of land and structure. When one owns a condominium, it is an undivided interest in the entire complex, and a divided interest in the unit purchased. The structure is jointly owned, and each one owns their own unit. The Homeowners' Association owns the main structure, and the owner owns what is attached to that structure. For example, the HOA owns the struts that make up the walls, the owner owns the drywall. The HOA owns the structure that is the floor, but the owner owns the flooring; the HOA owns the plumbing to the unit, but the owner owns the fixtures.

The question for insurance on the mortgage transaction is coverage of the interior ofthe unit. Lenders like Orion require coverage that insures the interior of the unit, so if there is a fire in the kitchen and the cabinets, walls, fixtures, etc. need to be replaced, many HOA master policies will not cover the loss. If this is the case, then your borrower/owner needs to obtain their own policy that covers the part of the unit that they own and for which they are responsible.

Orion and other lenders always contact the HOA management company and request a copy ofthe master insurance policy since it tells the lender if the unit is covered as part of the policy or if the borrower will need a separate, "HO6", policy to cover the accidents that may occur, damaging part or all of the unit.

If the borrower, your client, does need to obtain an HO6 policy, the coverage requirement is significantly less than the price (or value if a refinance) ofthe property and premiums are much lower than a policy for a detached single-family residence.

As the broker helping the borrower that is buying a condominium unit, you should always review the master policy with your client to see what is and what is not covered, and what their liability is should something happen, including earthquake, fires, floods, or tornadoes. Orion’s AEs are well versed in lending on condominiums and are here to help!

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