What are Fidelity Bonds for?
Every association and their management company should carry a Fidelity Bond. This policy should not only provide coverage for employee theft, but also forgery or alteration, theft, disappearance, destruction, computer fraud and wire transfers.
Even though most management companies handle all of the accounting for their Associations and, thus, carry their own Fidelity Bond, many things could still happen to an association’s money that may have nothing to do with their management company. If the loss wasn’t due to the management company’s accounting error or negligence, then the association could be responsible for the loss.
In addition, recent changes in Fannie Mae and FHA guidelines state that any condominium or townhome association with 20+ units or $50,000+ in annual assessment income must purchase a Fidelity Bond that is equal to or greater than 3 months of total assessments, plus any reserves. These requirements have also become law in some states. If the Association doesn’t carry a Fidelity Bond or the limit is less than required, a lender will most likely reject the new loan or refinance request, until the Association’s Fidelity Bond limit is increased.