Posted by Stacy (AZ) on March 28, 2002 at 11:56:13:
Yes, I see the logic in your thinking, particularly the “control” issue. I think you’ve convinced me to look into getting my own policy. But I’m still wondering if the existing policy is changed to “buyer and seller as their interests appear,” if this really IS now my policy, shared with the seller…equivilent to getting a new policy? I’ll be asking my agent.
Thanks for your input.
Thanks JB.
Buying on CFD Insurance Question - Posted by Stacy (AZ)
Posted by Stacy (AZ) on March 26, 2002 at 19:14:29:
I’m buying a house with an existing VA loan on CFD, and wonder if I need to do anything with the underlying hazard insurance. I’m planning on selling via L/O. The existing hazard insurance is for owner-occupied (sellers live there until sold to me), and the insurance payments are escrowed with the loan (which I’m paying). The CFD has a clause stating that any insurance payouts are mine as buyer. It will be recorded.
In looking through Bronchick’s Cash Cow course, it doesn’t mention anything being done to the insurance if it is escrowed with the loan balance. Maybe the sellers need to change it to a landlord’s policy?
Also, this house has a pool. Before I L/O the place, do I need to add additional liability insurance?
I’ll be reading the policy tomorrow after I get a copy, but are there any things to look out for regarding a pool?
(Danged pool)
Re: Buying on CFD Insurance Question - Posted by JohnBoy
Posted by JohnBoy on March 28, 2002 at 24:16:15:
The buyer on a contract for deed is usually the one that needs to get the insurance. Typically you would obtain your own homeowners policy and name the seller as additional insured. Since this is a VA Loan then there is no DOS violation when selling on contract. So you should get the new policy and the old policy should be canceled.
As far as getting additional liability because of the pool, it sure doesn’t hurt. You might look into getting an umbrella policy that would cover a pool and then you can use that as blanket insurance to cover all your properties. That way you wouldn’t have to take out separate policies on each property everytime you needed additional liability coverage. You could probably get a million dollar umbrella policy for about $400 per year to cover any property you own or have an interest in if buying on a L/O.
Re: Buying on CFD Insurance Question - Posted by Stacy (AZ)
Posted by Stacy (AZ) on March 28, 2002 at 10:28:00:
Hi Johnboy-
I read that you missed the convention this year, too. Hopefully next year we’ll get to touch bases again.
As for cancelling the insurance policy currently being paid-for out of loan escrow (the seller’s policy), why would I cancel that policy? Since legal title hasn’t passed, the seller’s policy should still be valid and binding. BTW, there’s little equity in this deal (the sellers bought the place less than a year ago), so the amount of coverage of the original policy is OK.
Also, in my CFD (Bronchick’s with some changes), the seller agrees to give all insurance claim payouts to me, as buyer.
I’m thinking the only reason to replace the insurance is to make sure I’m a loss payee, but the sellers have already agreed to change the policy to “interests of buyer and seller as they may appear.”
Anything I’m not considering, JB?
Yes, an umbrella liability policy is something I need to get. Since I’m now going into full-time investing, it’s on my to do list, along with about a million other things. It will have to be moved to the top, now.
I appreciate your feedback (especially since nobody else wanted to answer). (smile)
Re: Buying on CFD Insurance Question - Posted by JohnBoy
Posted by JohnBoy on March 28, 2002 at 11:29:02:
Title hasn’t passed, but a contract for deed is considered a sale. I would question as to whether the seller’s policy would cover anything even if changed to a landlord’s hazard policy. He’s not a landlord. You are not renting the property. You are buying it. I would check this out with your insurance guy and make sure the seller’s policy would cover everything if sold on a contract.
The only time I would see leaving the original policy in place is to not tip the lender off that the property has been sold and where you would still get your own policy. If you ever had a claim you wouldn’t file it with the seller’s policy, but file with your policy instead.
Since this is a VA Loan and it is being sold on contract for deed then tipping the lender off on the sale is not an issue since VA Loans are allowed to be sold on contract without violating the DOS.
Even if the seller’s policy would cover everything, and since there is no DOS issue with this particular loan, then why not just replace the policy with your own policy anyway? Then you don’t have an issue with collecting checks or anything if a claim had to be paid. You don’t have an issue whether the insurance company tries to deny a claim because the property did sell. Just seems to me this would be the safest way to go with this and eliminate any “potential” problems later. The cost shouldn’t be any different.
In my state this has just been the way we’ve always done it. The buyer gets a new policy and names the seller as loss payee and additional insured. In your case you would just name the seller as additional insured for liability purposes since any claims paid for damages would be paid to you directly.
If you were going to sell this on contract to someone else then you would have your buyer get their own homeowners policy naming you as loss payee and additional insured. You would carry your own separate umbrella policy for additional liability coverage if you weren’t content with the amount of coverage the buyers policy had. I would require the buyer if selling on contract to carry at least $500k in liability coverage.
With the way insurance companies try to get of out paying for anything I would want to make sure the policy would still cover everything if the property was sold on contract. I’m not big on insurance coverage other than I like to have my own insurance knowing I’m fully covered no matter what. I’m just looking at this from what I consider a common sense approach to limit any potential risks. So at least verify that the seller’s policy would remain in force when selling on a contract and read over their policy carefully to be sure if you go that route.