HELP!! Insurance Problem - Posted by RG-ATL

Posted by JT - IN on July 10, 2001 at 11:28:34:


What in the world would happen, if the place burned to the ground tomorrow, (I hope this doesn’t happen, “supersticious”), with the former owners name on the policy. Is he the loss/payee, along with the current lender? If so, you better hope this doesn’t happen, as you will be wrestling with a monster.

Set up your situation correctly. Deed the proeprty to a trust, with you as beneficiary, insure the property payable to the trust and lender, and the lender will not have any clue what is going on; hopefully!

Do this TODAY !!! Just in case it does burn to the ground tomorrow; yikes!


HELP!! Insurance Problem - Posted by RG-ATL

Posted by RG-ATL on July 10, 2001 at 09:56:29:

I did a quit claim on a house and paid a guy 1K to walk and made up his back payments. I filed my quit claim at the courthouse. The terms on the underlying mortgage are great so I don’t want to disturb it but my problem is that now with insurance.
His insurance is set to expire. I need to keep insurance obviously and I don’t want to have the mortgage co. call the loan.
My ins. agent says I can get a policy in my name but not in his name with me as secondary insured because he no longer has an insurable interest.
I guess I could take a chance and just get a policy in my name and send it to the mtg. co. but I don’t want to raise any flags. What can I do? My ins. agent says even with a power of attorney I can’t buy a policy in his name becasue he no longer has an insurable interest.

I need Help.

Re: HELP!! Insurance Problem - Posted by Sandy Wickware

Posted by Sandy Wickware on July 10, 2001 at 20:38:10:

I have lots of experience with this nightmare.

  1. Deed the property to a trust.
  2. Find an Ins. Co. such as DuBose 800-937-6213 who understands what you are doing. Dwelling policy.
  3. Ins. should read previous owner c/o land trust with the lender as the beneficiary.
  4. Make sure you have the info to cancel the old policy and do that once coverage is effective.
  5. Tell your buyers to get renters ins. to cover contents.
    Now if you have an incident, the lender, yourself and your buyers are protected.
    If there is a total loss the lender would be paid off, you would be paid the difference, a POA from the seller is necessary to cash the check and the trust docs. Then you simply reimburse the top that is left after your note is paid to the buyers and everyone is happy.
    Good luck.

Re: HELP!! Insurance Problem - Posted by EZ Landlord

Posted by EZ Landlord on July 10, 2001 at 15:03:11:

Another possible solution is to get the bill from the previous owner or his agent and pay that one! It really only needs to be the amount of the mortgage, but don’t make any changes, just to be safe. This will insure that no red flags pop-up. In order to protect your interests, put a second policy on the property in your name. The mortgage co does not need to receive any notice of this policy.

Paying a second policy seems a little silly but is a lot cheaper than having to find a new mortgage!

It isn’t a perfect solution, but it can keep your deal going until you set up a trust or flip it.

Re: HELP!! Insurance Problem - Posted by Travis (Dallas)

Posted by Travis (Dallas) on July 10, 2001 at 12:08:24:

I would try to flip the property. Sell it & make some money now & do the Land Trust next time.
Or if there is any equity in the property, get a partner capable of handling the mortgage issue if it becomes a problem.
I might try putting it in a Land Trust with the old owner’s name as part of the name of the Trust (John Jones 1112 Jones St Land Trust). Then I’d get insurance in the Land Trust’s name. What you fear may never occur.
Good luck.

Re: HELP!! Insurance Problem - Posted by Matt_IL

Posted by Matt_IL on July 10, 2001 at 11:46:53:


Disclaimer: I have no experience with this.

Although I have not yet done a subj-to, I plan to start this year, and I have been studying it quite a bit.

It seems to me like one possibility would be to always make sure that the seller does have an insurable interest. I can think of two ways to do that:

  1. Give the seller some kind of second mortgage, even if it’s something dinky like $25/mo. for a year or something. That would give you time to get the new insurance (with them as additional insured) and get some title seasoning. I’m guessing that even after the second was paid off, their name would probably remain on the ins. unless someone (you) said something. If you can make it for 1-2 years, hopefully the title seasoning and/or the equity will be sufficient that you would be able to refinance the property IF the loan were accelerated.

  2. Record a performance mortgage. This would accomplish the same thing without having to give the seller any additional $$$. The performance mortgage would basically say that you will perform to the terms of the purchase agreement (i.e. make the payments on the existing loan) and pledge the house as collateral so that if you get like 90 days behind on payments or something, the seller can foreclose and take it back. Of course, don’t make it TOO strong! You might have some sort of weasel clause in the event of acceleration. Also make sure there is no recourse against you personally, only the property. The performance mortgage should expire whenever the existing loan is paid off (the seller will be off the hook at that point). I believe that this is a perfectly legitimate and legal strategy (comments?)

There was a large discussion about this topic not too long ago; search for ‘subject’ or ‘insurance’. As I remember, the general consensus was that most likely the lender WILL see an insurance change, but in order to make it as smooth as possible:

  1. Use your own insurance agent (that you train) to create a new policy, which will replace the existing policy. Homeowners change insurance companies all the time. This in itself shouldn’t be suspicious.

  2. Take title in a land trust, not in your personal name. You didn’t mention if you did this.

  3. The policy will have to be a ‘landlord’ policy instead of the old ‘homeowners’ policy if it is going to be used as a rental instead of an owner-occupant.

  4. The listed insureds will then be:
    a. You or the name of the land trust or someone (you?) as trustee of the land trust. Exact wording varies by ins. company.
    b. The seller (if you have done something to create an insurable interest for him)
    c. The existing lender will be the loss payee

That’s my .02 worth. As I said I have no experience with this yet, but I hope to start buying sub-to and on lease-options (buy-and-hold) later this year. MOST of the creative methods involve triggering the DOS clause AFAIK except for a land contract wrapped around a VA loan and a PACTRUST (but I believe that involves to SELLING to an owner-occupant; not useful for buying RENTAL property AFAIK).

The experts say not to worry about acceleration, but I lie awake at night terrified of it (really), and I haven’t even bought a subj-to yet. But I hate working at a day job so much that I plan to try it. I personally wouldn’t mind that much if the house got foreclosed (as long as there was no other recourse), but I would feel bad/get a bad rep. for the seller’s credit getting trashed.

Let me know how this turns out, OK? Email offline if you like.

  • Matt