Subject-to and insurance - again (long) - Posted by B.L.Renfrow

Posted by JPiper on May 31, 2001 at 20:37:29:

Thanks for the explanation. Nope won’t be in Atlanta this weekend. Take care.


Subject-to and insurance - again (long) - Posted by B.L.Renfrow

Posted by B.L.Renfrow on May 31, 2001 at 24:53:47:

I know we pretty much beat this topic to death a couple months ago. But it’s an issue that just won’t go away.

I only started doing subject-to deals a little over a year ago, when I decided to look for safer and more profitable deals than the sandwich L/Os I’d been doing. In all the subject-tos I’ve done where the hazard insurance was paid through the lender’s escrow impound account, I’ve followed Bronchick’s advice and had the seller sign a letter directing the insurer to convert the policy to a NOO policy and change the named insured to the trust. I do not leave the seller as an additional insured, figuring it’s best to have their names off the insurance altogether. This is exactly what Bronchick has recommended in the past.

Well, it has only worked as intended in ONE deal. In all the rest, typically the insurer is completely confused by the whole trust/trustee thing, and has no idea how to handle it. Then, they end up wanting to cancel the original policy and re-write a new one naming the trust as the insured. When the lender gets notification of the insurance change, the questions start all over again.

I’ve had a couple cases where the lender started calling up my sellers, at home and at work, interrogating them about what was going on and why the insurance was cancelled. The sellers, caught off guard, either told them to call me, said they had sold the property(!), or just got flustered and hung up.

Needless to say, I’ve had a couple livid sellers, when they start getting these calls, after I’ve told them I’ll handle the insurance and everything.

These don’t seem to be isolated incidents…rather, it seems to be the norm, when doing it this way. And it’s not working. I’ve got one deal in a mess right now, which I spent half the day today trying to undo, faxing and calling all over the country…because the lender thinks the policy got cancelled, and can’t understand why the new policy doesn’t name the seller, even though I’ve pointed out the property is owned by the trust, which confused them even further, and undoubtedly is going to raise even more issues.

Because of several similar instances, I had decided, and posted here previously, that I thought a better approach was what Bronchick is now recommending: just leave the existing coverage in place and buy a second policy where the mortgagee is not named, under which a claim would be filed if a loss occurred.

I had discussed this previously with my insurance guy…he said no problem, as long as you didn’t file a claim under both policies. So deciding to implement this on one of my latest deals, I went to see him yesterday. After explaining the whole problem, and what I was trying to accomplish, his tune changed 180 degrees. He said insurance regulations explicitly prohibit having two policies on the same property. He further said that if a claim was filed, his company (State Farm) would send out some sort of query to all the other major insurance companies to determine whether other coverage existed. And if they did discover a second policy, they wouldn’t pay unless under court order!

When I pointed out that he had given me the exact opposite answer previously, he said he either misunderstood the issue or “goofed up.” He said “no way” would he write a policy on a property if he knew another policy was already in existence. He said the fact that no claim would be filed under the first policy is irrelevant. He also said State Farm would consider it fraudulent, even if the law doesn’t, if I failed to disclose the presence of an existing mortgage when signing the insurance application, regardless of the fact that I didn’t sign the note or mortgage, which remain in the original seller’s name.

Now, I have known this guy for 10+ years, and he does all my insurance, including my personal residence, vehicles, and several rental properties. So it’s not as if he thinks I’m some new late-night infomercial graduate.

So here’s the question – and I KNOW the theories, so I am particularly interested in responses from folks doing subject-to deals, especially if you’ve filed an insurance claim on a property:

Is my insurance guy simply wrong about the legality of two policies? Should I go find another insurer, and just not inform them of the existing mortgage and existing policy when I buy coverage? And just cross my fingers that if I have a claim, it actually gets paid? I dunno…this seems pretty risky, in light of what the State Farm guy says.

Or should I be leaving the sellers as named insured on the existing policy and just adding the trust as additional insured?

What’s everyone else doing? Just about anything has to beat the way I’m handling it now. It seems in trying to avoid notification to the lender by utilizing the trust, it’s like waving a red flag when they see the insurance change. And my experience is NOT supporting the claim that most lenders don’t care, as long as they get paid. They DO seem to care, and it’s becoming a real pain. There’s got to be a better way.

Brian (NY)

Re: Subject-to and insurance - again (long) - Posted by David Garcia

Posted by David Garcia on February 13, 2002 at 23:55:32:

To avoid this confusion, just keep the existing policy in effect & get a new one, a landlord policy.

Re: Subject-to and insurance - again (long) - Posted by Monique

Posted by Monique on June 01, 2001 at 12:03:52:


As you know, we use State Farm too. We’ve been told by our agent that they will NOT allow two policies on the same property, under any circumstance. We’ve had to abandon Bronchick’s approach.

We get a new policy for all of our properties, using our own State Farm agent. We did not want to go through the hassle of educating all the different insurance agents about Trusts.

All but one of our policies are written with …
Named Insured: Seller Name
Additional Insured: Trustee Name as Trustee for ABC Trust
Loss Payee: Lender Name
Policy Type: Landlord

LENDER ISSUE: Haven’t had a problem yet. The lender sees the seller’s name and simply replaces the policy in the escrow account.

INSURABLE INTEREST ISSUE: Our State Farm agent has assured me that the Trust has an insurable interest. That is, that the Named Insured and Additional Insured have “equal footing” on the policy. If one is found to not have an insurable interest, but the other does, the policy is still enforceable. I’m keeping my fingers crossed that my agent is right on this issue.

CASH CLAIM CHECKS: Fortunately, we’ve haven’t had to file a claim so far. We have a Limited PoA from the Seller. Also, the Trustee’s name appears before the Trust name on the Additional Insured line. Our theory (not tested, of course, just our thinking) is that it will be easier for a bank to cash a check that they believe is made out to an individual (Trustee) instead of a check made out solely to a Trust.

Keep us posted on what you uncover.


Re: Subject-to and insurance - again (long) - Posted by JPiper

Posted by JPiper on May 31, 2001 at 19:08:56:

The way I have most of mine insured is in the name of the seller with the trust as additional insured.

I understand the “theory” that the seller has no insurable interest. But the seller clearly is required by the loan documents to insure the house, and will be responsible for insurance problems not coverred by the policy vis-a-vis the lender. Meanwhile, the trust DOES have an insurable interest. I’d love to see an insurance company not pay off on this one…although I’ve never had a major sort of a claim. I have had claims…they were always paid without question. About the only pain in the rear was the check itself. And I don’t mean the fact that the sellers name was on it…the trust is a problem itself, always worth wasting at least a few hours of your time to get it deposited.

I think the idea of two insurance policies is going to be rejected by EVERY insurance company if you tell them what you’re doing. So this method requires you to lie or mislead. Clearly it is the first step in a fraudulent claim…not that you would do it. Interestingly, if Bronchick is correct regarding the seller not having an insurable interest, then the existing policy should be invalid once the property is deeded, and therefore a second policy IS the only valid policy. But good luck on getting an insurance company to go along with this.

I have generally found that when the name on the insurance and the name on the loan don’t match, that some lenders have a big problem with this. I had one like this with Nations Bank for a few years…who then sold the loan to Midland Mortgage. Midland threatened to put forced insurance on the property. Eventually I was able to prevail after calling their legal department. They ended up changing the name on the loan to match the insurance…if you can believe that! Nothing was every signed by me.

My attorney tells me that it is irrelevant that the named insured is not the borrower, that the fact that the mortgagee is named completely protects the lender. But this is a very tough sell with the lenders in my experience.

One avenue is to use the sellers name as the name of the trust. Smith Trust for example if the seller is Smith. Sometimes this “fools” the lender and they overlook it.

In general though I have not had an easy time with insurance matters either. Recently an insurance company declined to write a policy in the name of a trust. The way it read was the way the deed read “abc Trust, by it’s Trustee XYZ”. They declined it saying that they no longer insured trusts. Interesting though…they have two other of my properties that are in trusts insured right now!

Later I was successful in getting this one insured as described above by Shelter Insurance. We’ll see what the lender says…the sellers name is not on the policy.

I’m looking forward to how William and BR insure their properties…they evidently have no problems at all!

Again, putting the sellers name on the policy makes the problems go away. I always have a limited power of attorney to do so if necessary. But the battle can be half the fun.


Re: Subject-to and insurance - again (long) - Posted by Matt_IL

Posted by Matt_IL on May 31, 2001 at 18:14:51:

Do any of you commonly use a subject-to where you end up giving the seller a second for some equity?

In this scenario, can the seller remain on the original policy, since he IS a lienholder?

Re: Subject-to and insurance - again (long) - Posted by BR

Posted by BR on May 31, 2001 at 11:04:10:


Your insurance guy is wrong. The other policy is the one that ‘might’ be at risk because the seller has no insurable interest in the property once the title passes. The insured must be whoever is on the deed to have an insurable interest. I just simply get a new NOO policy. I believe it shows the mortgage co. as additional insured. I don’t worry about contacting the other insurance co… I once heard the insurance industry has a network such that when any new policy is written, the prior insurance company is automatically notified. You should always get a POA from the seller just in case you need it. I really dont give a hoot if the lender finds out…most are only concerned that they are getting paid in a timely manner, and that they are going to get paid should the house burn down. Like you I have all my insurance with one company and it might help that I am their biggest customer in the county, but I’m not even sure that matters.

Re: Subject-to and insurance - again (long) - Posted by WilliamGA

Posted by WilliamGA on May 31, 2001 at 08:58:54:


I used to deal with all of the brain damage of trying to educate a new insurance agent every time I did a subject to deal. Now I do them all this way…

I have one insurance agent that I use, he is with State Farm as well. When I take a property subject to, I call him and give him all the info. I invested an hour with him one morning a year or so ago so he is well versed in how I am operating with the Land Trusts and such. He then takes the info and does all the leg work for me, contacting the other insurance company, contacting the mortgage co, etc.

The result is that we have only had one problem in over a year of doing this and in that case I called the insurance co and just changed the policy after faxing them my POA from the seller.

It is MUCH easier doing it all this way and I really like only dealing with one agent.

Give me a call if you have any questions or would like the agents name and number.


Re: Subject-to and insurance - again (long) - Posted by Jim IL

Posted by Jim IL on May 31, 2001 at 03:07:04:

B.L. Renfrow,
I have not had to file a claim as of yet, well , not on one of my subject to homes anyway.
But, I do what Bronchick says to do, as well as the other “Gurus”.
I send the letter. If the insurance company raises any issues, I simply get the seller to give me a Power of attny regarding the home, and anything to do with it, including the insurance.
This just seems to be easier.
I think your agent is wrong, and you may want to call some other state farm agents.
I do have a second policy on one of my homes, and it is state farm.
I only did the second policy because the first was thru a company where I’d had problems of a different nature in the past, and I just wanted to avoid them at all cost.
Heck, get the other policy if it makes you feel better, just do not tell the agent about the existing policy.
I really do not see them sending out a query to other companies, but you may call around and see.
Maybe even call state farm headquarters in Bloomington Illinois and ask someone there.

When you get a clear answer, please share it here.
I am curious, but not really worried about this issue.

Take care,
Jim IL

Re: Subject-to and insurance - again (long) - Posted by lori

Posted by lori on June 02, 2001 at 13:51:55:

So in theory if you get a claim that paid more than to the loss payee (bank) anything over would go to insured and additional insured. Then you would use your power of attorney from the seller to collect their insurance portion?

Re: Subject-to and insurance - again (long) - Posted by Rick Vesole

Posted by Rick Vesole on June 01, 2001 at 01:20:58:

Hi Jim, we do things a couple of different ways depending on the situation. Most of the time we cancel the old policy and take out a new one.

We first try to put the insurance only in the name of the trust. Since we usually use the same insurance agent, we have no problem in getting the agent to cooperate.

We have the seller send the lender a letter telling them to said all future correspondence to them in care of us. Now, we do not even mention the transfer into trust. We used to tell them, but some of them wanted to see a copy of the trust agreement, so we just stopped telling them about the trust.

In a few situations, the lender has stated that the seller’s name needed to be on the insurance policy. So rather than argue with them, we will have the insurance agent list the insured as XYZ Trust f/b/o John and Suzy Seller and Our Company. This has always satisfied the lender.

I figure that since the trust originally listed the Seller as the beneficiary, before assignment of their beneficial interest, that this is an appropriate way to list the insured. Meanwhile, we do obtain a Power of Attorney, an Assignment of Insurance and an Assignment of Escrow at closing.

Hope this might help you resolve some of your insurance issues.


Re: Subject-to and insurance - again (long) - Posted by JPiper

Posted by JPiper on May 31, 2001 at 18:50:26:

So you’re insuring the houses in the name of the trust, naming the mortgagee, and forwarding the policy to the lender?


Re: Subject-to and insurance - again (long) - Posted by JPiper

Posted by JPiper on May 31, 2001 at 18:47:12:


So how are you insuring the houses?


Re: Subject-to and insurance - again (long) - Posted by Monique

Posted by Monique on June 02, 2001 at 15:22:06:


I’m counting on it being more than theory. If it doesn’t work that way, I’m sc@$%#d.

How it should work:

  • Total loss claim on a house worth $175,000.
  • The insurance company actually pays it. (This could be a challenge by itself.)
  • Mortgage Balance owed is $140,000: Lender is paid in full.
  • $35,000 difference is written in a check made payable to Seller Name and Trustee Name, as Trustee for ABC Trust. (Actually, I believe there would be a single check for $175K made out with the lender’s name on it too.)
  • The Trustee cashes the $35,000 check on our behalf, using the Limited PoA to stand in for the Seller.


Re: Subject-to and insurance - again (long) - Posted by JeneanNC

Posted by JeneanNC on June 04, 2001 at 21:35:38:

May I call you in reference to buying property “subject to”? I have a few questions from your post. Thanks in advance!!

Re: Subject-to and insurance - again (long) - Posted by David

Posted by David on June 03, 2001 at 01:08:56:

Forgive me for asking (I havn’t done a subject to deal yet), but why are the assignment of insurance and assignment of escrow important? Could you please email me a copy of these 2 forms?

Thank you,

David Minkin

Re: Subject-to and insurance - again (long) - Posted by BR

Posted by BR on June 01, 2001 at 09:39:20:

Yes, but I don’t forward anything, maybe my insurance guy does.

Re: Subject-to and insurance - again (long) - Posted by WilliamGA

Posted by WilliamGA on May 31, 2001 at 20:07:08:


What we do is just cancel the existing policy and start another one with my agent as a LL policy. It really goes smoothly when the other policy is with State Farm but seems to work with all of the others as well.

Since most all of my houses have an escrow the lender doesn’t seem to care who they make the check out to as long as there is insurance on the place. When they don’t have an escrow, I just call the existing ins. co and cancel the policy in place (using my POA) and have the refund mailed to me. I them place a policy on the house with my guy. All of the policies show the trust being the primary loss payee and the beneficial interests as they may appear as the additional insureds.

Hesn’t been a problem yet with the exception of one case where the lender seemed to want the policy to stay where it was for some reason. I think it was just a case of who we were talking to in that office. We will try with that one again later.

Will you be in Atl. this weekend?


Subject to - Missing Any Documents? - Posted by David (CA)

Posted by David (CA) on June 03, 2001 at 01:33:51:

Sorry if this is obvious or redundant, but for a newbie who has yet to do a ‘subject to’ deal, I’m trying to get a feel for the steps to follow and the documents needed. (The courses I’ve studied have been a bit vague on this aspect).

After convincing the seller to sell subject to the existing loan(s):

  1. Purchase and Sale Agreement is signed (if the seller is not half way out the door).

  2. Go check title if there is time

  3. Record Memorandum of Agreement to cloud title? Yes? No? Other?

  4. Close (kitchen table or other?):
    A. Notary is present
    B. Seller signs limited POA
    C. And CYA letter
    D. And assignment of insurance?
    E. And assignment of escrow?
    F. I give seller agreed-upon cash in form of cashier’s check?
    E. Seller signs California Grant Deed to me

After Close:

  1. I check title if not yet done

  2. I record deed immediately?

  3. I market the property.

  4. I get new insurance policy as discussed on these posts and then cancel old policy.

I plan to do one of these immediately, so if I’m missing anything or have anything wrong please let me know. Thank you so much.


Re: Subject-to and insurance - again (long) - Posted by Rick Vesole

Posted by Rick Vesole on June 03, 2001 at 16:04:37:

Assignment of Insurance is used so that you have right to any insurance proceeds or premium refunds.

Assignment of escrow is so that you have right to any funds released from escrow account.