Home Insurance in 90278>Question Details

JT, Real Estate Pro in 90278

Are "inactive" HOAs required to carry master policy insurance for the common area?

Asked by JT, 90278 Fri Nov 8, 2013

I recently move into a 2 in-a-lot unit. Our houses are detached. My backdoor neighbor suggested we render our HOA inactive and pay for our separate home insurance. I like the idea as I find the HOA requirements quite onerous. But when I called the insurance company who did the master policy, they said that state law requires an HOA to have $2 million liability coverage in case there was an accident in the common area. That seems dubious, especially since collectively our property isn't worth $2M. Since our homes are detached, can't we just get a single home policy?

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J.R. Thrasher’s answer
You would have to formally dissolve the HOA, which is probably not a good idea as you have an "undivided interest" with the other owner. You are trying to save a couple of $$$ but it could turn out to be a big headache for you.

J.R. Thrasher
http://www.SanDiegoRealEstateVeterans.com
619-929-0105
0 votes Thank Flag Link Tue Nov 12, 2013
You've asked an excellent question. There are a lot of different ways to look at the so-called "inactive" HOA. You might want to consult an attorney for an opinion on the legality of your neighbor's suggestion.

Whether legal, or not, in reality "inactive" HOAs do exist. I'm aware of a number of 2-on-a-lot townhomes where owners have at some point ceased acting as an HOA.

Property insurance, for hazards and liability, is usually the first messy part of that decision. Many insurance companies will not issue a policy for a portion of an association. Liability lawsuits may well be the primary reason. While two neighbors may agree to be "inactive" that will not prevent a visitor who trips in the common area driveway from filing a lawsuit against the HOA, and both neighbors.

Another problem which may arise has a direct impact on property values. If there's no active HOA, there's no corresponding reserve account. When one neighbor falls upon hard times and can't maintain their half of the HOA, both parties suffer an economic impact. When both homes are on a single lot, buyers tend to look closely at the condition of the neighbor's home. No matter how nice one unit is, if the other one has peeling paint and looks shabby it'll affect the sales price of both.

In a common ownership situation, it's certainly tempting to 'go solo' and not have to deal with a neighbor. The decision involves a lot more than just an insurance policy, though. You've made a wise move by stopping to investigate before diving in.
1 vote Thank Flag Link Fri Nov 8, 2013
The requirement (if there is one) is there to protect you and the public. If someone were to get hurt there has to be a way for them to be compensated for injuries and I dont think you would want to put your house up as an asset to collect against in a lawsuit. If you dissolve the HOA, the common areas are no longer common as you no longer have a shared interest in the property. Someone needs to own and be responsible for those common areas once the HOA is dissolved. Not sure how the law applies to common property when an association is dissovled but it sounds more expensive than carrying liability insurance that you only pay a portion of the bill but get protection so you can keep your home if your sued.
0 votes Thank Flag Link Tue Nov 12, 2013
Is there any common area? Many two-on-a-lot properties do not have any common area. Even though you are not keeping the HOA active, can the insurance still maintain the original master policy and you and the neighbor split the bill?
0 votes Thank Flag Link Fri Nov 8, 2013
The only common area is the driveway. It seems excessive to maintain a master insurance policy when the space in question is relatively small. So it begs the question whether we really need the insurance.
Flag Mon Nov 11, 2013
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