HOA boards face higher insurance costs

It was only a matter of time, and the worst is yet to come.

Nevada has had the highest number of D&O (directors and officers) insurance claims in the United States for the past three years, according to Western Risk Insurance Agency. D&O insurance defends associations that are being sued by homeowners or third parties (in most cases, lending institutions and investors), based on allegations that associations failed to comply with their governing documents or state laws.

Currently, all insurance companies that had been issuing D&O policies in Nevada are making changes to every policy upon renewal. Travelers D&O policies are excluding coverage for all claims related to foreclosures, title to property or lien issues. As of March 15. Liberty Underwriters added an endorsement that increases D&O deductibles to $35,000 for any claim related to foreclosure, title to property and or lien issues. As of June 15, Great American increased its deductible to $25,000 for any of these claims.

Both Liberty and Great American will require the association to pay the defense costs until the deductible is met. Do you live in a homeowner association that can afford one, two, three or more claims in a year without the need of a special assessment? Does your association have a contingency fund for the unexpected expenses?

CNA, Chartis, Chubb and Fireman’s Insurance Cos. no longer will issue D&O policies in Nevada. Your insurance agent can recommend what limited options your association will have when your current policy expires.

You also can expect to see your premium substantially increase, which definitely will impact your current-year operating expenses as well as your 2017 projections.

Associations currently are being served either with ADR (alternative dispute resolutions) claims, which are overwhelming the Nevada Real Estate Division, or lawsuits filed in District Court (where the court could dismiss the cases, stating that the plaintiffs need to first have ADR claims). What are some of the claims? With the Nevada State Supreme Court deciding the nine-month super priority lien only included assessments, some claims state the associations improperly included other expenses, such as late fees, legal and collection costs in their demands during foreclosure.

Other claims state the association sold foreclosed homes well below market values and that the association failed to follow governing documents or state laws regarding the foreclosure process.

Collection companies and law offices that included collection services that were authorized by associations to process the foreclosures also are being served ADR or lawsuits by the same parties. Don’t be surprised if collection companies and law firms revert to a “pay as you go” foreclosure process, which was the norm many years ago. In the 1970s, an association paid for each step of the foreclosure process in order to enforce its collection policies. If such change occurs, not only will the operating expenses of an association increase but for associations with limited funds, foreclosure actions may not be an option, which could lead to further delinquencies.

I wish I could end with some positive note, but I need to make homeowners aware that during the 2017 legislative session, there will be proposed foreclosure laws with the intention to not only eliminate the nine-month super priority lien but also change the foreclosure process from non-judicial to judicial. If you think the worst has come, think again. It is way past time for association boards and homeowners to take ownership and become involve in the legislative process. Campaigning to protect your pocketbook begins now.

Barbara Holland is a certified property manager, broker and supervisory certified association manager. Questions may be sent to holland744o@gmail.com.