Many Texas property owners must join a homeowners association (“HOA”). Condos often require HOA membership, and many single-family subdivisions now have them, too. HOA members have to pay monthly, quarterly, or yearly dues. These dues usually pay for taking care of common areas like landscaping, clubhouses, pools, and playgrounds. HOA members also may have to pay a “loss assessment.” As part of the HOA contract, the HOA very likely can charge all members a “loss assessment” if there is a loss that it cannot afford to pay and is not fully covered by the HOA’s insurance. Loss assessment coverage pays that assessment for you, up to your policy limit.
The HOA has insurance coverage for $1,000,000, and 50 members. An accident occurs at the HOA-owned swimming pool and costs the HOA $1,500,000. The HOA has no other money to pay the loss. Where will the HOA get the last $500,000?
- The HOA will charge you and the other 49 members $10,000 each, which is each member’s share of the loss.
If you have loss assessment coverage, and your limit is $50,000, the insurance would pay your $10,000 assessment and you would not owe the HOA any more money.
*⃣Most loss assessment coverage will not pay if the loss is not covered under the HOA’s insurance policy.
So, what should you consider if you are an HOA member? Make sure you understand what your risk might be as a member of the HOA, by:
- Reviewing your HOA documents;
- Talking to your HOA board;
- Finding out the HOA’s insurance policy coverage and limits;
- Finding out how much HOA money is available; and
- Talking to an insurance professional about how much loss assessment coverage you should have.