The Hidden HOA Insurance Risks Every California Homeowner Should Know

I want to share a critical issue I’ve encountered twice in just the past week, one that every buyer, seller, and homeowner in an HOA community needs to be aware of: HOA insurance coverage.

We all know insurance premiums are rising nationwide. But here in California, the problem goes beyond higher costs. Many HOAs are either going without coverage altogether or delaying renewals, leaving homeowners vulnerable when they need protection most.

Let’s look at these issues and their impact on you as a buyer, seller, or homeowner.

First issue: An expired policy. In a recent closing, we discovered the HOA’s liability insurance had already expired. The board hadn’t approved the renewal, leaving the association without coverage. As a result, the lender refused to release funds, and the transaction was stalled.

After days of coordination between escrow, the lender, the board, and the sellers, we managed to get the policy reinstated and closed the deal. It was stressful and time-consuming, but ultimately fixable with persistence.

Second issue: No HOA coverage at all. In another recent transaction, we discovered the community had no general liability insurance in place. This is a much bigger issue because it’s a violation of California law.

Under Civil Code 5805, HOAs must carry a minimum of $2 million in liability coverage if the community has fewer than 100 units, and $3 million if there are more than 100 units. Without this policy, the entire community is exposed.

Skipping this coverage is illegal.

Imagine if someone were injured in a pool accident or another serious incident. If the plaintiffs sued for millions of dollars, and the HOA carried no insurance, that financial burden would fall directly on every owner.

In other words, one unforeseen event could leave every owner on the hook for thousands or even tens of thousands of dollars.

Why does this matter to buyers and sellers? When you’re in the middle of a real estate transaction, missing or lapsed HOA insurance can have serious consequences:

● Delay or kill your closing. Lenders often refuse to fund without proof of coverage.

● Create major legal and financial risk. Uninsured claims could lead to special assessments on all homeowners.

● Violate California law. Non-compliant HOAs expose the entire community to liability.

These are real obstacles that can derail a deal at the last minute.

My advice for homeowners and agents. Whether you’re on the board, buying, or selling, the best way to avoid costly surprises is to stay ahead of these issues.

● If you’re on an HOA board, check your policies now and make sure you’re compliant.

● If you’re buying, carefully review the HOA disclosures and confirm liability coverage is in place.

● If you’re selling, talk with your agent early so there are no surprises in escrow.

Real estate deals are already complicated. Don’t let insurance issues be the dealbreaker. Stay proactive, review the documents closely, and consult with the right professionals when needed.

If you have any questions about HOA insurance requirements or how they might affect your sale or purchase, call, text, or email me at (619) 379-7664 or kwsmith3443@gmail.com. You can also visit kevinsmithsells.com. I’m happy to help.