2008-07-10

FORECLOSURE'S EFFECT ON MASTER INSURANCE

Nearly every association is well aware of the impact mortgage foreclosures are having on the association's cash flow.  Mortgage foreclosures and vacant properties can also have a less obvious -- but potentially more catastrophic -- impact on the association's insurance coverage.

Most master policies purchased by associations have provisions that require maintaining heat in each home, and an exclusion from coverage where damage is the result of a failure to maintain heat in the home. With the increase in mortgage foreclosures, more homes are being abandoned.  More often than not, when homeowners move out, they shut off all utilities, including heat.  Without heat in the home, pipes freeze, causing massive damage.  In most cases, the master policy will not cover such damage. 

While bursting pipes in vacant units may not be an issue during warmer months, it is imperative that all associations address this coverage issue now.  We recommend that policies and procedures be put in place to ensure associations are aware of vacant homes within the association and have taken steps to maintain heat in vacant homes when the weather does turn colder.  The losses to the association in the event of a denial of insurance coverage could financially cripple an association.

We also recommend that you contact your insurer or agent to discuss this issue and the limits of your policy’s coverage.