Finding Text
Finding 2025-003: Failure to Maintain Required Hazard Insurance Endorsement Naming HUD as Mortgagee/Loss Payee Federal Agency: U.S. Department of Housing and Urban Development Assistance Listing Number: 14.181 Federal Program: Supportive Housing for Persons with Disabilities Type of Finding: Significant Deficiency in Internal Control Over Compliance; Noncompliance Compliance Requirement: Special Tests and Provisions Criteria: In accordance with the project Mortgage, Deed of Trust, or Security Deed and Regulatory Agreement, the HUD project property must maintain hazard insurance, and the policy should be endorsed with a standard Mortgagee Clause with loss payable to HUD in the event of a covered claim. Condition: We inspected the most current insurance documentation maintained by the Organization for the project property. The policy documentation reviewed did not reflect HUD as mortgage holder/loss payee. Cause: Management did not establish and maintain effective controls to ensure that required insurance coverages and endorsements were obtained, reviewed, and kept current in accordance with HUD program and financing requirements. Effect: As a result, the Organization was not in compliance with the project’s insurance requirements. In addition, the omission of HUD as mortgage holder/loss payee increases the risk that the property’s insurance coverage may not fully protect HUD’s secured interest in the event of a covered loss. Questioned Costs: None noted. Recommendation: We recommend that management work with its insurance carrier and agent to revise the policy and related endorsements to name HUD as required under the applicable mortgage and regulatory documents. Management should also implement procedures to review all insurance renewals for compliance with HUD requirements before coverage is finalized.