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Do condo associations, HOA's need to carry Fidelity Bond Insurance?

Posted on Tue, Nov 08, 2011 @ 06:57 AM

Does Michigan require HOA's to carry Fidelity Bond insurance? I can't seem to find anything in the Michigan site condo act by-laws that says they do or don't. This was an issue I had earlier this year when I tried to refinance and the bank said it was required. Our HOA president said we didn't need it as we were not conducting business, and there had been numorous closings prior and none of them required an FB, so he was not going to add it.  What about in your states?

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Whether or not required, fidelity bonding is the prudent thing to do. Directors handle thousands (Millions in our case) of dollars belonging to other people. How could a condo (or a business) not have its employees bonded. In fact, I would say that Directors and officers might be personally liable if an employee stole money belonging to the association if there were no bonding.

posted @ Tuesday, November 08, 2011 8:00 AM by Bob Berman

Excellent point, Bob. Whether it is legally required in your state or not, it is the prudent thing to do.

posted @ Tuesday, November 08, 2011 10:11 AM by Phil Lamb

The reason for getting a fidelity bond has nothing to do with closings and bank requirements. It has to do with protecting the assn in case there is a theft of funds. Your Pres needs to step into the real world of managing an HOA which really is the same as conducting business. Anyone who handles money should be bonded. Look in your bylaws, it may even be required.

posted @ Tuesday, November 08, 2011 11:26 AM by mary

Thank you all for your comments. We had our annual meeting last night, needless to say it got a little tense. When I brought up the issue of this Fidelity Bond, once again he said we did not need it. I truely believe that some of the HO's really would like to have it. Infact one person asked about taking a vote on it, the pres. said "it could not be voted on by the HO's, that it was an issue for the directors to take up. I really nor did the others quite understand why we do not have a say in this, after all it is our money that we want protected.  
Mary, you hit the nail on the head about our Pres., he told me that if I was that insistant on having it, maybe I should pay for it out of my pocket. If he new anything about it, he would know that it has to be paid for out of the assoc. funds, by law, as co-owner, I can't pay for it.  
I might add that I asked him if the financial statements are done annually, and if so why we weren't given a copy, His response was "you can have one upon request", with that I told him he was not compliant with our bylaws as well as the Michigan Condo Act of 1978 Act. That they were to distribute them to all HO's. He agreed to that and said they would be mailed out in the future. Also, while looking at last years financial statement and he mentioned to the HO's that they have to keep a percentage of funds in reserve, but they do not have a seperate account for that(once again not compliant with state and our bylaws), just one for operating expenses. 
My big issue now is, does anyone know if we as co-owners can vote to have this Fidelity Bond put in place or is it totally in the hands of the officers? Please advise ASAP. Thank you

posted @ Wednesday, November 09, 2011 9:53 AM by Gary Simpson

Gary, you'll have to find a new President and get him or her elected. Ask the cost of a Fidelity Bond. It's very small. Why would he not want to have one? Maybe he is not bondable. That is a red flag. Ask him whether he is "bondable." 
Harold Ruderfer.

posted @ Wednesday, November 09, 2011 10:01 AM by Harold Ruderfer

Perhaps there is an ombudsman in your state who could lead you to the laws of Michigan regarding Fidelity Bonds. In some states there is provision for a percentage of the members to override the officers and Directors.

posted @ Wednesday, November 09, 2011 10:07 AM by Danny Greenberg

Just spoke with Vicky Hanson, Exec. Dir, of the Michigan Chapter of CAI. The Condo Act has not been updated to address issues like requiring fidelity insurance. The members need to keep their legislature members informed of the issue of security of funds, and the related issue of inability to obtain mortgages without insurance. FHA requirements for fidelity coverage is very strict.  
In some states, the condo general insurance will include a fidelity insurance policy - vs a bond which has different standards. However, the owners in this condo all need to know that their individual ability to obtain new mortgages or to sell their units (buyer needing mortgage) will be adversely affected until this is in place.  
Condo leadership does have an obligation to assist its members in obtaining mortgages. Otherwise condos will end up investor owned - turned into rental properties.  
Contact the Michigan Chapter of CAI. Sign on to caionline.org and read the "free" information for all about mortgage availability.  
You need to resolve this, saying "good luck" won't help.

posted @ Wednesday, November 09, 2011 12:22 PM by Nancy Jacobsen

If you thoroughly read all your gov. docs. you will find that the members are entitled to vote on very few matters -- electing the BOD; amending the CCRs and sometimes the bylaws; election to remove one or all of the BOD and sometimes voting to ratify or approve the budget. I doubt the members of your assn. are entitled to vote on whether or not the assn should have a fidelity bond; that is an administrative action of the BOD.  
The reserve funds should be kept in a separate bank account. It would be very difficult to adequately account for the reserve funds if they are co-mingled with operating funds. They should be kept in an interest bearing account and that interest is taxable. 
I agree with Harold that the Pres, at least, should be removed. From what you have written he is not carrying out his fiduciary obligation to the assn. In fact,IMO, by going along with him or not having the backbone to object to his practices, whether or not the the other board members should continue to serve is questionable.

posted @ Wednesday, November 09, 2011 3:49 PM by mary

In my Association Master Policy Fidelity Coverage is in the Policy. Fidelity coverage protects the association against fraud. Perhaps your state may require a Fidelity Bond, but you should verify if your Association Master Insurance Policy has this coverage build in (or as a Rider).

posted @ Monday, November 14, 2011 1:46 AM by RCH JR

A lot of thanks for all your valuable work on this article.

posted @ Thursday, January 12, 2012 1:08 AM by Pink North Face

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