Most boards are building their 2027 budget right now. Insurance renewals, reserve contributions, landscaping contracts, the usual line items.
One new item to add this year.
Starting January 1, 2027, Tennessee associations that collect assessments for common expenses will be required by state law to carry a blanket fidelity bond. This is not a best practice or a recommendation from your insurance agent. It is a statutory requirement, and the deadline lands about four months from now.
Here is what the law requires, how the coverage amount is calculated, and why this belongs in the budget you are working on today rather than a problem for next year.
The Law Came Out of a Real Failure, Not a Theoretical One
This requirement did not appear out of nowhere. It followed reporting on a Middle Tennessee property management company that managed dozens of associations across four counties, where communities discovered money was missing, with reported losses potentially exceeding a million dollars, and the company became the subject of a Tennessee Bureau of Investigation criminal probe.
The part that should get every board’s attention is what happened next. At least one affected association reported filing an insurance claim to recover its missing dues, and reported that the claim was denied for lack of sufficient proof of theft. The money was gone and the coverage did not respond.
That gap is what the new law is meant to close. It is worth noting up front that a bond pays on proof, which means [your association’s internal controls](link to the controls post) determine whether the coverage actually responds.
What Public Chapter 731 Actually Requires
Governor Lee signed Senate Bill 2326 into law as Public Chapter 731 on April 23, 2026, with the requirement taking effect January 1, 2027. The bill had bipartisan sponsorship and amends Title 66 of the Tennessee code.
The requirement itself is straightforward. An association that collects assessments for common expenses must obtain and maintain a blanket fidelity bond insuring against losses from theft or dishonesty committed by its officers, directors, or people it employs, or by any managing agent or that agent’s employees.
That last piece matters. The coverage is not just for a rogue treasurer. It extends to the management company handling your funds, which is precisely the scenario that prompted the bill.
Either the board or the managing agent may obtain the bond on the association’s behalf.
How Much Coverage Your Association Will Need
The law sets a formula rather than a flat number, so the requirement scales with the size of your association.
The coverage must equal your association’s reserve balances plus one-fourth of your aggregate annual assessment income, with a floor of $10,000.
Run the math on your own numbers before assuming you are covered. An association holding $200,000 in reserves and collecting $160,000 a year in assessments needs coverage of at least $240,000. An association with thin reserves and modest assessments may land near the minimum. Two communities on the same street can end up with very different requirements.
One practical note. Reserve balances move over time, and a healthy association’s reserves generally grow. A bond written to today’s numbers may not satisfy the formula in three years, so this is worth revisiting when you review your reserve study.
A Fidelity Bond Is Not Your D&O Policy
Boards often assume they already have this covered. Frequently they do not.
Directors and officers liability coverage responds to claims that the board made a bad decision. Your master policy covers property and general liability. A fidelity bond covers something different and narrower: someone with access to association money taking it.
Those are three separate coverages answering three separate questions. Carrying two of them does not satisfy a requirement for the third. If your board is not certain which of these the association currently holds, that is the first thing to find out, and your insurance agent can answer it quickly.
Whether Your Condo Association Falls Under This Law Is Worth Confirming
The statute is written in terms of homeowners’ associations that collect assessments for common expenses. How the requirement applies to condominium associations specifically is a question worth putting to your association’s attorney rather than assuming an answer in either direction.
The practical reality is that the underlying risk does not change based on how your community is legally organized. Any association that collects assessments and hands them to someone else to manage faces the same exposure. Even where the statute might not strictly reach your community, the coverage is worth carrying.
Enforcement Is Still an Open Question
Worth being straight about this: the law requires the bond, but questions were raised during the legislative process about who will enforce it.
That does not make compliance optional. It does mean the responsibility for getting this right sits entirely with your board. No state agency is tracking which associations have obtained a bond, and no notice is coming to remind you. Nobody is going to catch this for you.
What to Do Before January
The window is manageable if you start during budget season rather than in December:
- ask your insurance agent what fidelity or crime coverage the association carries today
- calculate your required amount using current reserve balances and assessment income
- confirm whether your management company’s own bond covers your association specifically or only the company
- get quotes now and build the premium into the 2027 budget you are already drafting
- ask your attorney how the requirement applies to your specific association type
- put a note in next year’s calendar to recheck the coverage amount against updated reserves
The Bottom Line for Boards
A fidelity bond is not an expensive line item for most associations, and it protects against the one category of loss a volunteer board is least equipped to absorb or explain to its neighbors.
This is also the second compliance change to reach Tennessee associations this year, arriving alongside [the new state law limiting how associations can restrict EV charging stations](link to the EV charging post once published). Board members did not sign up to track legislation, and most learn about changes like these well after the effective date.
That is a large part of what a management company is for, and it is worth understanding where that division of responsibility sits before a deadline arrives. Wise Property Solutions works with boards across East Tennessee on exactly this kind of financial and compliance oversight. Reach out if you would like help confirming where your association stands before January.
