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Multifamily Insurance Requirements for HUD 232/223(f) Loans
If you've got a healthcare property that is taking advantage of a HUD 232/223(f) loan's fantastic terms, you'll need to have the right multifamily insurance in place.
- Overview of HUD 232/223(f) Loans
- Required Insurance Coverage
- Property Damage Insurance
- Liability Insurance
- Professional Liability Insurance
- Flood Insurance
- Earthquake Insurance
- Recommended Additional Insurance Coverage
- Business Interruption Insurance
- Boiler and Machinery Insurance
- Other Insurance Considerations
- Insurance Compliance and Monitoring
- Partner With Janover Insurance Group
- Get Financing
If you're considering a HUD 232/223(f) loan to refinance or acquire a healthcare facility, it's crucial to understand the insurance requirements associated with these loans.
Proper insurance coverage protects your investment and ensures compliance with HUD guidelines. In this article, I'll provide an overview of the HUD 232/223(f) loan program and detail the specific insurance requirements (and some insurance recommendations) for these loans.
Overview of HUD 232/223(f) Loans
HUD 232/223(f) loans are designed to help borrowers refinance or acquire existing healthcare facilities, such as nursing homes, assisted living facilities, and intermediate care facilities. These loans offer long-term, fixed-rate financing with terms up to 35 years, as well as the potential for non-recourse financing and assumability.
Required Insurance Coverage
When obtaining a HUD 232/223(f) loan, borrowers must maintain adequate insurance coverage to protect the property and comply with HUD guidelines. The required insurance coverage includes:
Property Damage Insurance
Property damage insurance protects the healthcare facility against damage caused by events such as fire, wind, hail, and vandalism. HUD requires a minimum coverage amount equal to the replacement cost of the property, with a deductible not exceeding the greater of $25,000 or 1% of the property's insurance replacement cost.
Liability Insurance
Liability insurance protects against third-party claims for bodily injury or property damage occurring on the property. HUD requires a minimum coverage of $1 million per occurrence and $3 million in aggregate.
Professional Liability Insurance
Professional liability insurance, also known as medical malpractice insurance, is required for healthcare facilities financed with HUD 232/223(f) loans. The coverage amount depends on the type of facility and the services provided, but typically ranges from $1 million to $5 million per occurrence.
Flood Insurance
Flood insurance is not required for every property that has a HUD 232/223(f) loan. But if the healthcare facility is located in a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA), you'll need to be covered. The amount of coverage must be at least equal to the lesser of the replacement cost of the property or the maximum coverage available under the National Flood Insurance Program (NFIP).
Earthquake Insurance
For healthcare facilities located in areas with a high seismic risk, HUD may require earthquake insurance. The specific requirement and amount of coverage will depend on the property's location and the results of a seismic risk assessment. HUD will typically require a Probable Maximum Loss (PML) study to determine the potential exposure and the appropriate level of earthquake insurance coverage.
Recommended Additional Insurance Coverage
In addition to the required insurance coverage, borrowers should consider obtaining the following insurance policies to further protect their healthcare facility investment:
Business Interruption Insurance
Business interruption insurance helps cover lost income and extra expenses incurred when a covered event forces the healthcare facility to suspend operations. This coverage can be crucial in ensuring the facility's financial stability during a temporary closure.
Boiler and Machinery Insurance
Boiler and machinery insurance, also known as equipment breakdown insurance, covers damage to mechanical and electrical equipment caused by events such as power surges, mechanical breakdowns, and operator error. This coverage can help protect the healthcare facility's expensive medical equipment and systems.
Other Insurance Considerations
HUD may require additional insurance coverage based on the healthcare facility's specific characteristics, location, and risk factors. Borrowers should work closely with their lender and an experienced insurance broker to determine the exact insurance requirements for their HUD 232/223(f) loan.
Insurance Compliance and Monitoring
To maintain compliance with HUD 232/223(f) loan insurance requirements, borrowers must provide annual insurance renewals and updates to their lender and HUD. All insurance policies must be approved by the lender and HUD to ensure adequate coverage and compliance with guidelines.
Failure to maintain proper insurance coverage can result in serious consequences, including loan default and foreclosure. Borrowers must work closely with their lender and insurance broker to ensure ongoing compliance with HUD's insurance requirements.
Partner With Janover Insurance Group
If there's one thing you can take away from this piece, it's that figuring out your specific insurance requirements for HUD 232/223(f) loans can be complex. Partnering with an experienced broker with a huge Rolodex of top-rated insurers is very likely the best way to go, for most, as a result.
The Janover Insurance Group team specializes in insurance solutions for HUD 232/223(f) loans and has extensive experience helping borrowers secure the necessary coverage to protect their investments and meet HUD's requirements — we're extensively familiar with all forms of HUD financing, too.
We understand HUD's specific insurance guidelines, can identify the appropriate coverage based on your facility's unique characteristics, negotiate competitive pricing and terms with our comprehensive network of insurance carriers, and assist with annual renewals to ensure you're always in compliance.
To find your best multifamily insurance policy for a property with a HUD 232/223(f) loan, you just need to take 30 seconds to complete a single form. We'll pull in our network and find the most competitive policies to ensure your investment is well protected at the right cost.