A condo board’s reserve budget decision can determine whether every unit in the building qualifies for a conventional mortgage. Fannie Mae reviews a condo project’s reserve funding, insurance, and repair history to decide whether the project is eligible for financing, and a board that falls short of the standard can make an entire building difficult to sell. That review process is turning routine board decisions into a new trigger for directors and officers (D&O) insurance for condo associations. Agents advising condo boards need to understand how this lending rule can turn into a fiduciary-duty claim.
What Fannie Mae’s New Reserve Rule Requires
Fannie Mae issued Lender Letter LL-2026-03 on March 18, 2026, raising the minimum reserve allocation for capital expenditures and deferred maintenance from 10% to 15% of a condo association’s annual budgeted assessment income. The requirement applies when a lender uses the Full Review process for loan applications dated on or after Jan. 4, 2027. The letter also eliminates the baseline funding method, which had allowed a project’s reserve cash balance to approach zero without technically falling below it. Lenders relying on a reserve study to justify a lower contribution must now confirm that the association’s budget matches the highest recommended reserve allocation shown in that study.
Community association attorneys who track the update note that a project falling short of these thresholds can end up on Fannie Mae’s ineligible list, sometimes called a “blacklist,” which can leave buyers with fewer financing options and put downward pressure on property values. Fannie Mae and Freddie Mac issued the updates jointly, and the Community Associations Institute has been working with industry partners to help boards adjust reserve funding, insurance documentation, and reporting practices in response.
When Lost Eligibility Becomes a Board Liability
Once a project loses eligibility, the fallout lands on owners. Buyers who need conventional financing disappear from the pool. Sales stall. Unit values drop. Owners who bought or held property under the assumption that financing would stay available now have a concrete injury. If the board knew its reserve funding sat below the new standard and didn’t act, an owner has grounds to argue the board breached its fiduciary duty.
Agents evaluating a client’s coverage should treat directors and officers insurance for condo associations as a direct response to this exposure. Does the current policy respond to claims tied to financial decision-making, or only to the governance disputes agents are used to seeing, like election fights and contract disagreements?
Where D&O Insurance Responds
D&O coverage responds when an owner alleges that the board’s decisions regarding reserves, insurance, or repairs caused financial harm. It doesn’t stop a project from losing Fannie Mae eligibility, and it doesn’t touch the financing itself. A policy like the one offered by Kevin Davis Insurance Services includes a duty-to-defend feature that engages legal counsel as soon as a claim arrives, along with coverage for the association itself, not only individual board members.
Coverage varies by policy, and boards can misunderstand what their D&O insurance applies to. Agents should use this emerging exposure as a reason to review a client’s policy now, before a lending eligibility review turns into a claim.
‘Blacklist’ FAQ
What is Fannie Mae’s condo “blacklist”?
The term refers informally to a project that falls onto Fannie Mae’s ineligible-project list after failing to meet reserve funding, insurance, or other project standards, thereby restricting conventional financing options for buyers in that community.
Can a condo board be sued over lost lending eligibility?
An owner can argue that a board’s decisions on reserves, insurance, or repairs breached its fiduciary duty if those decisions directly caused the project to lose eligibility and owners suffered financial harm as a result.
About the Author
Kevin Davis is President of Kevin Davis Insurance Services, Inc. (KDIS) and managing general agent for Travelers Insurance — one of the largest specialty insurance writers for community associations in the United States, currently insuring more than 40,000 associations nationwide. With three decades in the insurance industry — 25 of them devoted exclusively to community associations — Davis brings rare depth of expertise to a highly specialized field. He founded KDIS in 2000 with a two-person team and has since built it into a firm of more than 65 employees, establishing the company as a trusted leader in its market. A nationally recognized authority on loss prevention, Davis writes and speaks regularly on the subject. He also serves as a faculty member for Community Associations Institute (CAI) training programs throughout the country.
About Kevin Davis Insurance Services
For over 35 years, Kevin Davis Insurance Services has built an impressive reputation as a strong wholesale broker offering insurance products for the community association industry. Our president, Kevin Davis, and his team take pride in offering committed services to the community association market and providing them with unparalleled access to high-quality coverage, competitive premiums, superior markets, and detailed customer service. To learn more about the coverage we offer, contact us toll-free at (855) 790 -7393 to speak with one of our representatives