Fidelity Bonds for Community Associations

by admin on July 9, 2010

in Accounting, Board of Directors, Management, Operations

Fidelity Bonding is Prudent

I am not aware of any law that requires a community association to have Fidelity Bond coverage, but in the normal course of business it is a prudent form of protection.  Fidelity Bond coverage provides protection for loss of money (i.e., reserves or operating expenses, additional securities and property) that would arise from fraudulent or dishonest acts of those who would be defined as persons handling the association’s money.  Fidelity bonds may also be known as, or called, employee dishonesty bonds or crime coverage.  For this article we will call it “Fidelity Bond”.

A Fidelity Bond should provide coverage for theft or forgery by any employee of the insured and should also include the property management company and their employees as additional named insured.  Most legitimate property management companies would also be covered by a bond. 

The amount of coverage that is generally recommended for an association to carry a Fidelity Bond would be at least three times the monthly assessments plus what the association has in reserves.  Associations that collect on a quarterly basis may require even more coverage.  Some association documents may define the type of coverage is required and the amounts of coverage. Consult with your association’s attorney and your insurance agent as to what would be required or what would be a prudent amount for coverage.   

In addition to the above, both FHA and FNMA (Fannie Mae) are also requiring Fidelity Bonds.  FHA requires 3 months of assessments and the reserve funds should also be covered.  Fannie Mae is requiring that the bond to be in the amount of at least 3 months of an association’s assessments.  Thus, it is incumbent upon the association to get Fidelity Bonding coverage in order to allow any real estate sales.  Today, community associations are being transformed and this is just one more way that demonstrates that transformation.

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