Since 2007, lenders have been requiring prospective condo owners purchase insurance to protect the interior of the condo.  The problem with this is that the interior of the condo is already covered by the condo association’s master policy.  When the condos were built Fannie Mae or Freddie Mack, required the project be insured at 100 percent of the insurable replacement cost.   The interior of the units (i.e., all part of the unit which would be considered real estate including bathroom fixtures, finished flooring, light fixtures, and other built-ins) has always been insured by the projects master policy.

So what changed in 2007?  Since 2007 Fannie Mae and Freddie Mack have left it up to the lenders to review the coverage in the condominium bylaws.  The lenders do not take the time to review the bylaws and invariable require that the prospective purchaser of the unit purchase interior coverage on the owner’s policy even though the master policy already covers it.  Fannie Mae and Freddie Mack require that the master policy be primary which means that even if there is damage to the interior of a unit, the master policy covers it, not the owner’s policy.

The insurance companies are collecting the premiums from the unit owners knowing they will never have to pay a claim.  Proper review of the condo bylaws before purchase is necessary to ensure unnecessary insurance coverage is not being purchased.