Posted by KC Questions on July 01, 2002 at 02:52:27:
I tell the sellers that we can help them with their house problem, but there are a few steps that they have to take first. If they don’t, we can’t help them with their problem.
Lease/Option Trouble Due To Wrong Insurance? - Posted by matt
Posted by matt on June 27, 2002 at 23:13:25:
Does the owner of a house that I am going to lease/option from need to notify his home owner insurance company that he is lease/optioning the house and will no longer be using the house as his residence? This is a point that I have not seen covered on this site, nor is it mentioned in the course I own.
My gut feeling is that if my tenant/buyer burns the house down, the owners insurance company is going to say they are not covering the damage to the house because the insurance only covered the house as a primary residence and not a rental property? What are you thoughts.
Regards,
Matt
Re: Lease/Option Trouble Due To Wrong Insurance? - Posted by KC Questions
Posted by KC Questions on June 28, 2002 at 24:17:32:
Have the owner change their policy to dwelling coverage only which is a landlord policy. Also have them add you as an additional insured on their policy.
Re: Lease/Option Trouble Due To Wrong Insurance? - Posted by matt
Posted by matt on June 28, 2002 at 23:43:27:
KC,
Thank you for replying to my post.
Why should I have them add me as additionl insured on the insurance policy? What does that do for me exactly? What if I’m not put on the policy as additional insured?
Regards,
Matt
Re: Lease/Option Trouble Due To Wrong Insurance? - Posted by KC Questions
Posted by KC Questions on June 29, 2002 at 13:49:21:
I have been told that there are only two ways that insurance companies make money:
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collecting premiums
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denying claims
You need to have the seller change the insurance to a landlord policy, so that in the event that there is a claim (example: the house catches on fire and burns down), the insurance company couldn’t argue that the homeowner’s policy that the seller had was invalid since they didn’t live there at the time, and use that as the reason to deny the claim.
I always tell sellers that even if they decide not to sell the house to me, if they are not living in the house they still need to change to a landlord policy for this very reason. I tell them that they are paying all of this money per year thinking that they have insurance, but if the place burns down, and the claim is denied, the mortgage will not be paid off, and unless they have a big stash of money in the bank to pay it off, I don’t think they want to take that risk.
Now imagine that you have this property on a lease option and it burns down and the insurance company is ready to cut a check. The insurance company is only going to contact the people listed on the insurance policy which will only be the seller and mortgage company if you haven’t been added as an additional insured. You want to be one of the ones contacted so you can get your cut.
Re: Lease/Option Trouble Due To Wrong Insurance? - Posted by matt
Posted by matt on June 29, 2002 at 18:48:13:
I don’t understand why I would be entitled to a cut of the insurance. I don’t own the house, so why would I be entitled to any money. I can see if I gave the seller an option deposit then I could ask to be reinburst for that. But, if I get in with nothing down, why would I be entiled to a cut of the insurance?
Regards,
Matt
Re: Lease/Option Trouble Due To Wrong Insurance? - Posted by KC Questions
Posted by KC Questions on June 29, 2002 at 19:06:58:
Your option has value. You rehabbing, repairing, and upgrading the property has value. You finding paying subtenants has value.
Everything mentioned above has value as well as costs associated with it that you alone had to bear and you were expecting to be reasonably compensated for those costs. If the house burns down, why should you lose everything that you put into it?
Imagine you lease/option a house for $50,000 (the balance of the mortgage), put $20,000 in it to rehab it, and now it is worth $125,000. Six months later, the house burns down. The insurance company decides they will pay $125,000. $50,000 will go to pay off the underlying mortgage and the other $75,000 will go to the seller unless you are listed on the policy.
Re: Lease/Option Trouble Due To Wrong Insurance? - Posted by matt
Posted by matt on July 01, 2002 at 01:29:56:
KC,
I see. I understand now. Have you ever had a seller balk at naming you as additionally insured? Did you ever do a L/O without being additionally insured?
Regards,
Matt