Insurance won't put me on the policy. L/O People??? - Posted by d.henderson

Posted by Chris on February 15, 2000 at 19:32:49:

Dee- I expect Bill Gatten to swoop in at any time;-} I am hearing a PACTrust posting in the background cleared for landing.

To meet #4 below use a seperate lease and option. If the bank has the manpower to look for every property tax increase I would be amazed. Even if they do see an increase in taxes how do they know what the cause is of that increase. A lot of digging on their part would have to occur. Property taxes do increase.

The Garn Act carves several exceptions in which the lender may not enforce the due-on-sale:

Exemption of Specified Transfers or Dispositions

With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon -

(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;

(2) the creation of a purchase money security interest for household appliances;

(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;

(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

(5) a transfer to a relative resulting from the death of a borrower;

(6) a transfer where the spouse or children of the borrower become an owner of the property;

(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;

(8) a transfer into an inter-vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or

(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

Insurance won’t put me on the policy. L/O People??? - Posted by d.henderson

Posted by d.henderson on February 15, 2000 at 17:56:37:

I have a property that I have all the contracts signed and before I paid the Sellers my $500.00 to buy=L/O their house, I wanted proof that I was on the insurance policy. It’s paid through the mortage but bought here in town. Insurance Farm Bureau said No. Wouldn’t put me on the policy because it is a homestead, etc, etc. said that it’s illegal. So now what? Is there something the seller can get notorized so if something happens I’m covered. They called and want to do this or anything, just want out from under the house.
Any advice would be accepted. S
packing for Atlanta,YEA!
Dee-Texas

Re: Insurance won’t put me on the policy. L/O People??? - Posted by TRandle

Posted by TRandle on February 15, 2000 at 22:24:07:

Dee,
Bud had good responses. If the sellers are leaving, then they will have to change their policy anyway. I assuming the RDP in Bud’s post refers to a Residential Dwelling Policy (landlord policy)? As far as being added to a policy, anyone who has an insurable interest (possibly subject to different definitional interpretations) should be able to be added.

My tenants are required to have renter’s coverage and we are additional insureds on their policy which provides an extra 300k in liability protection before the “plaintiff” gets to us. Some companies have balked at the idea of a landlord having an insurable interest in a personal contents policy, but many don’t. It seems to me that a L/O would provide more of an insurable interest, but I’ve also read Bronchick and LeGrand who state it’s not a big deal if you can’t get it done - use it as a negotiating tool. If you don’t want to go the land trust route, it sounds simplest to just buy an additional policy from your own insurance person.

Re: Insurance won’t put me on the policy. L/O People??? - Posted by Bill K. - FL

Posted by Bill K. - FL on February 15, 2000 at 21:47:48:

This relates to a post a while ago about someone who had L/O’d a house and it burned down. The writer had subleased/optioned it and wanted to know what to do and where he stood. The matter seemed to be left up in the air. In fact, I posted several related questions and no one responded. I assume then, there is a need on this site for someone knowledgeable in insurance matters. As far as the current question in this post is concerned, if you are leasing the home with the option to buy it at some future date, I feel the responsibility of loss remains with the owner. You do not own it. You are a lessee. Why should you be on the policy? I would never put a renter on my insurance policy. It might just give them a reason to burn the place down! Do you see the reasoning here. It’s too bad no one has stepped up to the plate on this site concerning insurance matters because judging from the response, and lack thereof, we could sure use it. Don’t mean to step on any toes.

Re: Insurance won’t put me on the policy. L/O People??? - Posted by Jim IL

Posted by Jim IL on February 15, 2000 at 19:30:23:

Dee,
How exactly was the insurance company notified?
Try sending a letter to the agent, you write the letter and have your sellers sign it.
Make it a request to have you listed as “Additional insured”.
Then, draw up a limited power of attorney that allows you to collect the insurance proceeds, should there be a claim on the policy.
And, make sure your L/O agreement states that they are to add you to the policy in this way.
Make a paper trail.
It will not cover you totally, but will give you some CYA should you ever need to handle it as a problem later. (ie: court)

Hope that helps,
Jim IL

Re: Insurance won’t put me on the policy. L/O People??? - Posted by Chris

Posted by Chris on February 15, 2000 at 18:30:32:

Dee-

If the sellers remove their homestead exemption would the insurance company be happy? Correct me if I’m wrong, but the homestead exemption is only good for their personal residence. If you L/O from them they will be moving on to a new personal residence where they will want the homestead exemption. This will cause them to remove it from the property you are interested in.

Just my 2 cents.

-Chris

Re: Insurance won’t put me on the policy. L/O People??? - Posted by d.henderson

Posted by d.henderson on February 16, 2000 at 07:08:40:

Hi Bill K,
Thanks for the post. The thing that bothers me in all of this is: If the house is damaged in fire and I’ve taken rent and option money I don’t want the L/O’s that I have in place coming back to me wanting their money back. Have any ideas on this?
Thank you again and I always read your posts.
Dee-Texas

Re: Insurance won’t put me on the policy. L/O People??? - Posted by d.henderson

Posted by d.henderson on February 15, 2000 at 19:08:08:

Hi Chris,
If they take the homestead off then that will make the taxes almost double which will notify the bank.
Dee-Texas

Re: Insurance won’t put me on the policy. L/O People??? - Posted by Bill K. - FL

Posted by Bill K. - FL on February 16, 2000 at 08:16:01:

Hi Dee,
This is an issue that has to be addressed. I have had a rental house burn. So I know this happens. And actually in a large community such as mine (Broward County) the fire inspector told me fires such as mine, that were started by young children, average several a week. So the first question should be who is responsible for starting the fire. If it is your tenant/buyer I don’t see how they can expect to get anything back. I know mine didn’t. And actually since the estimate of repair was greater than the insurance proceeds I was probably within my rights to sue them. But you can’t get blood from a stone. In actuality I ended up very well off because between what I received from insurance and the subsequent sale to a rehabber put me way above FMV. Now assuming the tenant is not at fault, many leases already address this by giving the owner the opportunity to repair the property to continue the lease. In the meantime they can’t collect rent but my insurance policy paid me for six months of rental income. If the owner doesn’t want to repair the property then the tenant is let out of the lease and should receive any security and unused rent from the owner. This why I have a problem with sandwich leases and would much prefer to buy subject to. Because then you ARE the owner and not a tenant. The decision will be yours to make. Notwithstanding that, the agreements between you and the seller and your tenant/buyer should specifically spell out who is at risk of loss at to what extent especially for acts of God. We have hurricanes here and you have tornadoes there. So I don’t profess to know the best way to handle this issue and would welcome more input from those who have done them in the past and what they would recommend now.

Shame Shame - Posted by Bud Branstetter

Posted by Bud Branstetter on February 15, 2000 at 20:43:03:

As a word of warning if the property is no longer a homestead you are supposed to notify the appraisal district. You could have taxes assessed for the time it was not a homestead when you try to sell.

As for the insurance, the idea is to have the property placed in a land trust and the land trust added as an additional policy. The second way is to record the performance mortgage and as a mortgage you are entitled to be added as an additional insured. The third way is to pay for a new policy. There shouldn’t be a problem to change to a RDP even though some companies want the owners homestead insured with them to extend liability. Property taxes here are about 2.8%. Rural is generally less but the homestead expemtion is only 15K so not a real problem.