Your association's master policy no longer has to replace the roof
Your association's master policy no longer has to replace the roof
2026-09-15 · New Mexico · Compliance
Two sentences in a March 2026 lender letter changed what a condominium master policy has to pay for. Roofs came out of the replacement-cost requirement, and the requirement that policies carry inflation guard was withdrawn altogether.1
Roofs, at actual cash value
Fannie Mae: “The master property insurance policy must provide coverage on a replacement cost basis, with the exception of roofs. NOTE: Roofs must be insured, but do not have to be insured on a replacement cost basis.”
The distinction is money. Replacement cost pays what it costs to put a new roof on. Actual cash value pays replacement cost minus depreciation — so a twenty-year-old built-up or flat roof, of the kind common on New Mexico condominium and townhouse stock, may be worth a fraction of what replacing it costs. The difference falls on the association, which means on the owners, usually as a special assessment.
This does not require any association's policy to be written that way. It removes the federal requirement that it not be.
Inflation guard, withdrawn
Fannie Mae: “we are retiring the requirement that project developments have inflation guard coverage.” Freddie Mac is blunter: “The inflation guard requirement has been retired in its entirety.”
Inflation guard automatically increases a policy's limits over the term to track construction costs. It exists precisely so that a building insured at last year's rebuild cost is not underinsured at this year's.
How replacement cost may now be proved
The 100 percent replacement-cost requirement itself survives, and Fannie Mae broadened the ways a lender may document it:
“The master property insurance policy coverage amount must equal at least 100% of the estimated replacement cost value of the project improvements, including common elements and residential structures. The lender or servicer may rely on any one of the following… • guaranteed replacement cost coverage, or its equivalent; • extended replacement cost coverage, or its equivalent; • a replacement cost value estimate provided by the insurer; • the project's insurance risk appraisal; or • a statement from the insurer or other applicable professional with appropriate expertise to make such a determination.”
Read together with the inflation-guard withdrawal, that produces a specific gap. The 100 percent test is applied when the loan is reviewed. Nothing now requires the limit to keep pace between reviews. Revaluing the building annually has become the board's job rather than an automatic policy feature.
Why the timing is bad for New Mexico
Construction costs in New Mexico's rebuilding regions have moved fast. The 2022 Hermit's Peak/Calf Canyon fire in San Miguel and Mora counties and the 2024 South Fork and Salt fires around Ruidoso pulled labour and materials into the same markets where associations insure. Inflation guard was the mechanism that kept limits tracking that movement without anyone remembering to act.
The wildfire insurance market is tight in the same places. New Mexico's Superintendent of Insurance reported more than 6,200 homeowner non-renewals in 2025, an all-time record, and put the share of New Mexico properties carrying no insurance at 13 percent — second worst in the country.2 An association negotiating hard on price in that market now has two more levers to give away, and both of them are invisible until a claim.
The FAIR Plan is not a substitute
Associations pushed out of the admitted market often look to the New Mexico FAIR Plan. Its commercial limits were doubled from $1 million to $2 million in October 2025, which makes it a more realistic backstop for a master policy than it was.
But the Office of Superintendent of Insurance's own consumer guide records two limits that matter here: FAIR Plan coverage is written on an actual cash value basis, and the plan “does not offer premises liability and liability cannot be added.” A typical New Mexico declaration obliges the association to carry replacement-cost property coverage and liability coverage. A FAIR Plan policy can therefore leave an association insured and simultaneously in breach of its own governing documents — a point worth raising with counsel before, not after, the switch.
Three questions for the next renewal
Is the roof insured at replacement cost or actual cash value, and if the latter, what is the estimated shortfall at the roof's current age? Does the policy still carry inflation guard as an endorsement now that it is not required, and if not, when was the replacement-cost figure last updated? And if the association is in or heading toward the FAIR Plan, which obligations in its own declaration can that policy not satisfy?
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