The Hidden Issues Delaying the Sale of Your Condo or Townhouse

Selling a condo or townhouse comes with a layer of complexity that selling a single-family home rarely does. Your buyer's financing depends not just on their creditworthiness, but on your HOA's. And that's where deals can, frustratingly, fall apart.

When you list a condo for sale, your HOA's master insurance policy—and its ability to produce documentation proving that coverage meets lender requirements—becomes part of your transaction. If the policy falls short, or if the paperwork takes too long to surface, buyers can lose financing, closings get delayed, and deals collapse. It's a problem the National Association of Realtors® is now actively addressing after members flagged it as a growing concern last year.

Here’s why this issue is becoming more prevalent and what all parties should be aware of during a home sale. 

What is HOA master insurance and why do lenders care?

When you buy a condo or townhouse, your HOA carries a "master" insurance policy covering common areas, exterior walls, roofs, and shared amenities. Mortgage lenders require proof that this coverage meets the guidelines set by Fannie Mae and Freddie Mac—the government-backed entities that purchase the majority of conventional loans—to protect their collateral.

That scrutiny intensified after the 2021 collapse of Champlain Towers South in Surfside, FL, which prompted Fannie Mae and Freddie Mac to overhaul their condo project eligibility standards. Finalized in 2023, the updated requirements put insurance coverage, reserve funding, and deferred maintenance under a permanent microscope—meaning lenders must now verify each before a conventional loan can be approved.

"When we are underwriting a condo purchase, we need to see the master policy including the building, liability, and fidelity coverages," said Jake Vehige, president of mortgage lending at Neighbors Bank.

"We are looking for $1 million in general liability coverage and replacement cost coverage that is sufficient to rebuild the building—ideally 'guaranteed replacement cost' or 'extended replacement cost,' language that means the insurer agrees to pay 100% of the property's insurable replacement cost. We can't use actual cash value coverage."

That distinction matters more than many sellers may realize. If the HOA's policy wouldn't fully cover the cost of rebuilding the property after a disaster, a buyer's loan can be rejected, often catching everyone off guard deep into the process.

The documentation gap

Even when a policy meets requirements on paper, getting proof of that coverage to the lender on time is its own obstacle course. HOA boards are often run by volunteers or part-time management companies that aren't set up to field rapid document requests from lenders. The result is a game of broken telephone that can stretch days into weeks.

"Real estate professionals are reporting that extended back and forth between community association boards and lenders over items like proof of master insurance coverage is increasingly surfacing late in condo transactions," Austin Perez, NAR's senior policy representative for insurance issues, said in comments provided exclusively to Realtor.com®.

"When those issues arise days or weeks into a deal, real estate professionals are often caught in the middle trying to keep transactions on track."

NAR first heard about the issue from members in 2025, particularly in resort and second-home markets where HOA concentration is highest. In markets like Cape Cod, MA, and Myrtle Beach, SC, as many as 75% to 80% of homes are part of a community association—meaning the problem, unchecked, could become routine.

The ineligibility trap

Late paperwork is one problem. Inadequate coverage is another, and it’s potentially more damaging.

When a condo complex's insurance doesn't meet Fannie Mae or Freddie Mac guidelines, or when a building has underfunded reserves, deferred maintenance, or a high concentration of short-term rentals, the entire complex can be deemed "nonwarrantable." That designation effectively cuts off conventional financing for any unit in the building—not just the one being sold.

"For a seller that may mean conventional mortgage buyers simply can't move forward with the purchase," Vehige said. "This obstacle can shrink the buyer pool pretty quickly because a large share of condo buyers rely on conventional loans."

Buyers who want to proceed may be forced into portfolio loans or other nonconventional products, which typically come with higher rates and different down payment requirements. "Flipping a loan product in the middle of the process can really change the circumstances for all parties involved," Vehige added.

Vehige noted that the 5% deductible cap Fannie and Freddie impose isn't always a deal-killer—exceptions are sometimes possible. But insurance coverage that relies on actual cash value, particularly on roofs, and insufficient fidelity coverage that an HOA is unwilling to increase, are harder problems to work around.

How NAR is trying to help

NAR is actively working to address the issue at a policy level. After members flagged the problem in 2025, NAR's Resort and Second Homes Committee recommended that the organization support a nationwide disclosure requirement compelling HOA boards to provide master insurance information to sellers in a timely fashion. The recommendation passed the NAR Executive Committee unanimously in November.

"NAR is hearing concerns from members in resort and second-home markets across the country and is closely examining how delays in association master insurance documentation are affecting real estate transactions," Perez said. "We're exploring practical ways to improve clarity and reduce last-minute surprises so consumers can make informed decisions earlier in the process."

What sellers can do today

Waiting for a policy fix isn't a strategy if you're listing your home this spring. The good news is that sellers can get ahead of most of these issues with a little legwork before they hit the market.

Vehige's advice is straightforward: "Before you list, ask the HOA for the master insurance policy, the current HOA budget, and any information you can get about reserve funding. Those documents are exactly what lenders review to determine whether a condo is warrantable."

Specifically, sellers should confirm their HOA's master policy includes guaranteed or extended replacement cost coverage along with at least $1 million in general liability and adequate fidelity coverage. They should also check whether the building has a current reserve study and that the reserve fund is adequately funded. Any significant deferred repairs are worth flagging early.

"If there's an issue with insurance coverage or the reserves are underfunded, it's so much better to know that early instead of the lender discovering it halfway through the process," Vehige said. "A quick email to your HOA can save weeks of delays."

As the number of community associations continues to grow, these issues are only going to become more common. Sellers who don’t treat HOA documents as seriously as they do every other part of the process do so at their own risk.