Tennessee will require HOA fidelity bonds from January 1
Tennessee will require HOA fidelity bonds from January 1
2026-09-19 · Tennessee · Compliance
From January 1, 2027, a Tennessee homeowners' association that collects assessments for common expenses must obtain and maintain a blanket fidelity bond insuring it against theft or dishonesty by its own officers, directors, employees and managing agent. Governor Bill Lee signed the measure as Public Chapter 731 on April 23, 2026.1
Tennessee had no such requirement before. Associations were free to carry crime coverage and many did, but nothing in the condominium statutes or in the Nonprofit Corporation Act obliged one to.
What the new part says
The act adds a new part to Title 66, Chapter 27, and the operative sentence is a single paragraph:
“A homeowners' association collecting assessments for common expenses shall obtain and maintain a blanket fidelity bond to insure the HOA against losses resulting from theft or dishonesty committed by the officers, directors, or persons employed by the HOA, or committed by any managing agent or employee of the managing agent.”
The reach to “any managing agent or employee of the managing agent” is the part that answers the circumstances that produced the bill. The covered loss is not limited to an insider on the association's own payroll; it extends to the outside management company holding the association's operating and reserve accounts, and to that company's staff.
It applies to condominiums too, despite the caption
The bill's caption speaks of “property owners' associations,” and the definitions section speaks of a “homeowners' association.” Neither is as narrow as it reads. The definition covers an incorporated or unincorporated association whose members consist primarily of the owners of residential property covered by a declaration, and then adds an express inclusion: it “[i]ncludes a unit owners' association organized under § 66-27-401.”2
Section 66-27-401 is the unit owners' association provision of the Tennessee Condominium Act of 2008. A condominium association that collects assessments is therefore inside the mandate on the same terms as a single-family subdivision association.
Unanimous in both chambers
HB 2338 was filed by Representative Caleb Hemmer on February 2, 2026, with Representatives Boyd and Hardaway; SB 2326 was filed the same day by Senator Jeff Yarbro. The Senate passed it 30–0 on March 23, 2026 and the House passed the Senate bill 91–0 on March 26. Not a single member of either chamber voted against it, and the fiscal note was “not significant.”3
How much coverage the formula produces
The act sets the amount by formula rather than leaving it to the board:
“Such bond or insurance policy must provide coverage in an amount equal to the reserve balances of the association plus one-fourth (1/4) of the aggregate annual assessment income of such HOA; provided, that the minimum coverage amount must be ten thousand dollars ($10,000).”
Two inputs, both drawn from the association's own books. The reserve balance is the larger of the two for most established communities, and it is the figure that moves: an association that has been funding reserves toward a roof replacement carries a required bond that climbs with the fund. The second input is a quarter of aggregate annual assessment income — roughly one quarter's billings, which approximates the operating cash passing through an agent's hands between disbursements.
The statute does not say on what date the figures are measured, nor how often the amount is re-tested. It says the association “shall obtain and maintain” coverage in that amount, which states a continuing obligation without fixing a recalculation point.
The $10,000 floor governs only the smallest associations. An association with no reserves and under $40,000 in annual assessments lands on the floor; anything larger is driven by the formula.
Who may buy it
The final sentence of the section provides that “[t]he board of directors or managing agent may obtain such bond or insurance on behalf of the HOA.” The duty sits on the association; the act permits the managing agent to place the coverage as the association's agent. It does not address the case the rest of the section is built around — coverage placed by the same agent whose conduct the bond is meant to insure against — and it imposes no requirement that the association verify the policy exists or that it be named as the insured on a policy the agent procures.
What the act leaves out
Three omissions are visible on the face of a two-section statute.
There is no enforcement mechanism. The act creates no penalty, no cause of action, no regulator, and no agency with authority to ask whether a bond exists. Tennessee does not license community association managers, so there is no licensing body to condition a licence on compliance either.
There is no filing or proof requirement. Nothing obliges an association to record the bond, disclose it to members, produce it on request, or report it in a budget or annual disclosure. An owner who wants to know whether their association complies has no statutory route to the answer.
There is no small-association exemption. The duty attaches to any association collecting assessments for common expenses, with no floor on unit count, budget, or whether the association self-manages. A twelve-lot subdivision with a volunteer treasurer and a $4,000 annual budget is inside the mandate at the $10,000 minimum.
The effective date moved once
As introduced, the act was to take effect July 1, 2026. Senate Amendment 1 (SA0694), adopted on March 23, 2026, did one thing: it deleted Section 2 and substituted January 1, 2027.3 The six-month shift lands the obligation at the start of a calendar year, which for most associations is the start of a fiscal year and a renewal cycle.
What to watch next
The bond requirement is an insurance answer to a supervision problem, and the supervision problem is untouched. Tennessee licenses real estate brokers and mortgage originators; it does not license the people who hold association reserve accounts, and no licensure bill was filed in the 114th General Assembly. The legislature adjourned sine die on April 23, 2026 — the same day the Governor signed this act — and the 115th General Assembly convenes in January 2027, the month the mandate takes effect.
The open practical question is supply and price. A blanket fidelity bond sized to reserves plus a quarter of assessments is a routine product in states that have long required one, but Tennessee's market has never had to quote it at scale, and the act gives associations no transition period beyond the date itself.
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