Homeowners' associations across Tennessee will soon have to lock down their money like never before. Gov. Bill Lee has signed a new law that forces HOAs that collect dues to carry insurance against fraud and theft, a move aimed squarely at protecting neighborhood coffers after years of complaints about missing cash and murky management.
What the law requires
Under the measure filed as Tennessee General Assembly bill SB2326, any homeowners' association that collects assessments for common expenses must obtain and maintain a blanket fidelity bond that insures against losses from theft or dishonesty. The bond generally has to cover an amount equal to the association's reserve balances plus one quarter of its total annual assessment income, with a minimum of $10,000 in coverage.
The statute lets either a board or a managing agent buy the bond on behalf of the community, and after a late change to the bill's timing, the requirement will not kick in until Jan. 1, 2027.
A local homeowner's warning
The law arrives after a string of stories from homeowners who say association money vanished while their properties deteriorated. Griffin Bohn, a resident of the Provincetown development in Antioch, told WSMV that previous management at his community did not account for collected fees, leaving some homes in rough shape and forcing residents to swallow a one-time $900 special assessment.
Bohn said his neighborhood's standard HOA fee runs about $150, while other nearby developments charge up to $250. He credited the current manager with being more responsive and said the monthly cost still feels tolerable. “It's nothing that I would say is really unreasonable,” Bohn told the station.
Numbers and the fiscal picture
The bill's official fiscal note calls the state-level impact “not significant,” but it also flags several unknowns, such as how many HOAs already carry fidelity bonds and how many will have to buy new coverage. The analysis, prepared by the Legislature's Fiscal Review office, leans on a Tennessee Advisory Commission on Intergovernmental Relations study that counted 3,447 active HOAs in 2015, a number officials say may not match today's reality.
All that uncertainty means a lot of association boards and management companies are expected to comb through existing insurance policies and start shopping for quotes over the coming months.
What a fidelity bond actually does
A fidelity bond is a specialized insurance policy that covers an organization when someone who handles its money decides to go rogue. It protects against losses from dishonest acts by employees, volunteers, or outside managers, according to Forbes Advisor. In the HOA world, that means an association could potentially recover funds if a treasurer or managing agent steals from the account, though the fine print and premiums can look very different from policy to policy.
How a community pays for those new premiums will depend on its governing documents. Some boards may tap reserve funds, while others could push the cost onto homeowners through regular assessments or special fees.
With the mandate set to take effect on Jan. 1, 2027, communities have a runway to get their paperwork in order. Boards are encouraged to start asking managers and insurers for proof of coverage and for quotes now, and homeowners who want a clearer picture can request copies of their HOA's insurance declarations and recent board meeting minutes that mention fidelity coverage.
