Lenders now require Condo Owners to maintain a H0-6 "Walls-in" insurance policy

Fannie Mae and Freddie Mac are now requiring that borrowers obtain a H0-6 "Walls-in" coverage policy unless the Homeowners Association can document that the master policy provides the same interior unit coverage. The master policy must include replacement of improvements and betterment coverage to cover any improvements that the borrower may have made to the unit.

Master insurance for condos typically covers the building "from the studs out" and condo owners are encouraged to get an additional policy to cover the contents and finishes of their unit. Until recently that coverage was not required as a condition of your mortgage but due to changes in lending guidelines, it is now a requirement to get a mortgage. The coverage is called HO-6 "Walls-in" insurance. Lenders are requiring coverage equal to 20% of the appraised value of your condo and you would then get additional coverage for your possessions.

"Walls-In" coverage is the rebuild interior aspects to a unit: Full Kitchen, Full Bathroom, Flooring, lighting, etc. If the Structure of the Condo complex burned down, the Association is ONLY responsible (in most all cases) to reconstruct the Building, the unit owner is responsible for the interior reconstruction.

There are three classes of assets in any home. The first is the exterior structural components, i.e. the walls and roof. Homeowners Associations cover this part of the property with their master insurance policy. Generally all state laws require an association to have only a "bare walls" policy

The second class of assets includes all of your personal property including furniture, art, books, clothing, and other personal possessions. If you are a buyer you will want to have this kind of policy.

The third class does not generally occur for people. This class of asset includes all the interior items that are still attached to the home. This includes plumbing fixtures, cabinets, interior doors, kitchen appliances, furnace, light fixtures, wall coverings, carpet or wood or stone flooring, and everything in the bathrooms.

It is possible that assets in this third class might have slipped through the cracks as you were considering coverage. You might have thought that the Association's policy included coverage for these items, and, indeed, some associations do, but many more do not. Some personal property policies also include some coverage, but it might be minimal.

In the event of a total loss of your home due to fire, the Association's policy would re-build the structure but leave you with "bare walls," as in an empty shell. If you had that minimal coverage on your personal insurance policy, it would scarcely pay for rebuilding the interior of your home the way it was.

Fannie Mae and Freddie Mac have finally realized this gap in coverage and have moved to close it. Lenders may even require that the insurance be part of the borrowers monthly escrow.