Posted by MoniqueUSA on September 08, 2003 at 19:30:05:
JP,
It is common for a lender to be notified of changes to an insurance policy. It’s never raised an eyebrow for us.
Yes, there is a good chance that the insurance company will notify the lender of the new policy. But we’ve seen cases where the lender does not accept the new policy from the insurance company without getting permission from the borrower to make the change. So we notify the lender by sending a copy of the dec page, along with a Power of Attorney from the borrower allowing us to act on insurance matters, to the lender.
I have researched in the archives how to address the issue of insurance when getting a property subject to. I’d just like some confirmation that I understand correcltly, especially given that the archives are at least a year old.
Is this corrent - If I use a Land Trust, then I have the seller change the policy to a landlord policy, naming the lender as the loss payee and the trust and its “beneficiaries as they appear” as additional insured.
And when my seller asks if the insurance will still be in her name, the bottom line answer is “no.” Right?
Re: sub 2 insurance - do i have this right? - Posted by Jim FL
Posted by Jim FL on September 09, 2003 at 24:02:26:
Ted,
I’ll take a stab at your questions.
Over the years I have changed the way I handle insurance on sub2 deals, based on the insurance industry changing over the years.
We must learn to go with the flow a bit on this issue and work it to our advantage.
There are several schools of thought when it comes to insurance for sub2 deals.
Here are a few ways to handle it, as well as some comments from me.
Have the seller change the existing policy to a landlord, or rental dwelling policy, along with changing the insured to the trust, or trustee, and the loss payee being the lender and the trustee.
This was the way that most “Gurus” taught the method in the past, however, not all insurance companies carry non owner occupied policies, so this does not always work. As the others said, not all insurance agents will understand your request either, and educating agent after agent grows very old, very quick.
Leave the existing policy in place, and obtain a new policy of your own, seperate, and use that for claims. I personally think this is just plain silly, because paying for a policy that is not going to be used is a waste of money.
Cancel the existing policy, AFTER you obtain a new one of your own, naming the trust or trustee as the loss payee and and the lender. The insured party would be the trust or trustee.
With this method, you can use the same agent over and over, and not have to re-educate them along the way.
There is not an issue with the lender, because they see this all the time.
You can tell them about the insurance change, by sending a letter to the lender, and the power of attny from your seller.
I don’t do that, we just cancel the existing policy, and then get a new one.
The insurance company send the notice to the lender about the new policy.
As long as payments are current, and the lenders collateral is covered, the lenders simply will not care.
It is very common to place a house into a trust for estate planning reasons etc, so no red flags there either.
I use number 3 above, as oyu might be able to tell.
Works like a charm.
Thanks for the references to the archived discussions, Monique.
It does seem that this topic has been hashed out in previous years, but after all of the reading I am still a bit confused.
If I understand correctly, for the seller to stay on the policy, I basically follow Monique’s strategy:
Get new landlord policy
Seller is Named Insured
Trust is Additional Insured
Lender is Loss Payee
Cancel old policy
Send letter to lender notifying them of new policy
But what is the process so that the seller is not on the insurance? This is really where I’m not understanding, but here is what I have figured out:
Get a new landlord policy
Lender is Loss Payee
Trust and beneficiaries as they may appear are
additional insured
Trust and Trustee are Named Insured
Send letter to lender notifying them of new policy
Cancel old policy
If I go this second route, then using the name of the sellers as the name of the trust, ex: “Smith Trust” tends to result in the lender “overlooking” the fact that the seller is not actually on the policy.
Re: sub 2 insurance - do i have this right? - Posted by MoniqueUSA
Posted by MoniqueUSA on September 08, 2003 at 16:34:11:
Ted,
If you have the seller change their current homeowner’s policy to a landlord policy the way you described, the policy WILL still be in their name.
If you are going to take this approach (i.e., Seller is Named Insured; Trust is Additional Insured; Lender is Loss Payee), I strongly suggest you get a new policy with an insurance agent that YOU choose.
You are going to get rather frustrated trying to teach/train every insurance agent that you come in contact
with – because each seller will likely have a different insurance company and different agent. If you develop a working relationship with one insurance agent, you only have to “train” that one agent. They can set up a new policy for you for each house you acquire.
Once the new policy is in place, cancel the seller’s existing homeowner’s policy and send notice to the lender notifying them of the new policy.
You can prepay for one year’s worth of premiums at closing, then have the lender pay the following year’s premium from the escrow account (assuming that T&I are escrowed in with the payment).
Re: sub 2 insurance - do i have this right? - Posted by Stewart
Posted by Stewart on September 09, 2003 at 22:36:09:
If the policy is canceled and you buy your own, do you buy it until next year when the lender will pay out of escrow? I thought they would insist insurance payment gets escrowed.
Your suggestion of using the same insurance agent each time makes sense. Now, what if my goal is to get a policy that does NOT have the seller’s name on it. What approach do I take? Even if I set up a new policy, as you suggested, you still have the seller as the “named insured.” Is that the only way to do it?
Send notice to the lender notifying them of the new policy? Are we trying to bring extra attention to the fact that we just assumed their “non assumable” loan? Wouldn’t you just be asking for the loan to be called, or do you always assume the lender doesn’t care?
And you said “if you are going to take this approach…” so I’m curious what is the other approach? Get the policy in my name, lender as loss payee and trust as additional insured?
As long as you have added the lender as the loss payee, why do you the buyer need to notify the lender of anything? There’s probably a good chance the insurance company will notify them anyway, but if you tell them yourself it just seems like you’re asking for it …
Re: sub 2 insurance - do i have this right? - Posted by MoniqueUSA
Posted by MoniqueUSA on September 08, 2003 at 19:40:39:
Ted,
Some folks make the Named Insured the Trust and Trustee so that the seller’s name never appears on the new insurance policy. Other folks make the Named Insured the borrower (the seller) so that the name on the loan matches the name on the insurance.
There are pros and cons to each approach. Check out these two threads from some time ago on a discussion on the different approaches to insurance: