Fidelity Bond

A fidelity bond (also called a fidelity insurance policy or crime coverage) protects the HOA against financial loss caused by employee dishonesty, embezzlement, or theft — whether by a board officer, employee, or management company employee who handles HOA funds. The bond must be in an amount sufficient to cover the maximum risk of loss — typically at least three months of operating expenses plus the reserve fund balance. Many state laws and some lender requirements mandate that HOAs carry fidelity coverage. Management companies should carry their own fidelity bond covering their employees' handling of client funds, and the HOA's management agreement should require proof of such coverage.

HOA funds have been embezzled in communities large and small — the fidelity bond is the financial backstop when this happens. Without it, the community may lose funds with no means of recovery.