MHC Lenders vs MHC Insurance Companies By Kurt D. Kelley, President, Mobile Insurance

Fannie Mae and Freddie Mac underwrite many manufactured home community (MHC) loans. They also set loan-required insurance standards for other lenders. Some months ago, the two leading MHC loan issuers decided they would no longer approve insurance coverage with the following general or excess liability exclusions: 

1) Absolute Assault and Battery (A&B) 

2) Sexual Abuse and Molestation (SAM) 

These exclusions on Excess Liability insurance policies have proven more difficult to remove from MHC offered insurance policies than a Squatter from a California MHC. 

There’s no definitive word on what changed Fannie and Freddie’s mind regarding these exclusions. However, logic suggests a borrower faced a business ending uninsured liability claim due to an A&B or SAM exclusion. It’s not unusual for MHC owners to be sued when someone in their community is assaulted, battered or sexually abused. However, most plaintiff lawyers also allege Negligent Security by management which typically is covered by liability insurance even when A&B and SAM exclusions are present. 

The result is a battle of the titans. There’s a demand for coverage by the lending Godzillas that insuring King Kongs won’t offer. The consequences are delayed loan closings, increased costs for borrowers, and headaches for your loan originator and insurance agent business partners as well as your internal team. 

The good news is that with certain community security improvements, A&B and SAM exclusions may be removed from general liability insurance policies. Also, stand alone SAM coverage, though not inexpensive, is now being offered for excess liability coverage up to the required coverage limit. Stand-alone A&B coverage exists today, but only up to a $500k limit which still leaves a loan in an insurance non compliant state. Also, some new excess liability offers are now coming online for some properties without these exclusions.

 My recommendation for borrowers is to work with MHC experienced, focused loan originators and commercial specialty MHC insurance agencies. And even more preferably, loan originators and insurance agents that know and trust each other. They know the issues and how to best navigate them. They will also address these issues up front, and help you save time, money, and heart medication. 

President of Mobile Insurance, an agency specializing in insurance for manufactured home communities and retailers. Named top commercial insurance agency by American Modern Insurance Group. Member of numerous insurance companies’ policy development and advisory teams. One of largest manufactured home specialty agencies in the country. 2017- Present Founder and Publisher of the Manufactured Housing Review, an industry publication dedicated to Manufactured Home Industry professionals. www.manufacturedhousingreview.com Kurt D. Kelley, J.D. President, Mobile Insurance Kurt@MobileAgency.com www.mobileagency.co