I have searched the forum for information on this topic, but have only seen a few references without any specific answers.
When purchasing real estate subject to existing financing, and when that financing includes an escrow for insurance, how do you transfer the insurance into the name of the buying entity? I have a friend who recently tried to do this, and when he tried to change the beneficiary, the mortgage company would not allow the insurance to be in the name of anyone other than the mortgagee and mortgagor. This would seem to be a real obstacle for any “subject to” deal, and yet I have heard no clear discussion on the topic. Any help would be appreciated. Thanks.
What you want to do is get added as an additional insured. This may be a little easier if you first have the seller transfer title into a land trust with a trustee appointed by you. From there you would just have the insurance company add the trustee as ‘additional insured’.
I would also get a limited power of attorney from the seller to allow you to manage the property more easily. For this I would use your company name, preferably a “Real Estate Management” company.
If you intend to rent the house you would ultimately want to get a landlord policy. At the very lease have the renter get a renters policy to insure their belongings.
I had a similar issue with a subject-to deal years ago. Only for us, it wasn’t an escrow problem, it was an ‘insured’ problem.
We didn’t know if we should insure the trustee, or the beneficial interest and our insurance agent didn’t know either.
I don’t remember who we decided to insure, but I remember that it opened a big ole’ can of worms when we had to make a sinkhole claim on the house a couple of years later.
Consult ins.-knowledgeable lawyer
To find most P&C (property/casualty) insurance-wisdom I’d arrange a short sit-down with one of those lawyers who routinely defends P&C insurance claim actions. Those guys & gals can see thru the maze of who might need coverage and be liable as they spend their days working this puzzle.
Plaintiffs’ lawyers specialize in finding and working to collect from insured defendants (that’s where the $$ is 
so they get quite knowledgeable on the subject, as of course ins. defense lawyers also do.
I learned years ago that as a general rule the P&C sales broker or agent has little knowledge on this topic as he/she doesn’t spend his office hours threading this legal needle as do those lawyers.
You’ll find that ins. defense lawyers are generally members of the largest law-firms and generally charge most competitive fees so call one or two of those firms.
Thanks for your replies, but this sounds like a huge fly in the ointment for purchasing properties subject to the existing mortgage. My understanding is that even transferring a title into a land trust can be its own issue, for similar reasons. What bothers me about this is that I have been to several seminars where the speakers have glossed right over this; acting as if it is the easiest thing in the world to assume an existing mortgage and get into a property with nothing or little down. So I have several opportunities to do that right now, and I cannot take advantage of them for this very reason.
Rising rates=Rising lender’s reluctance to assuming
Think about this…if I rates are dropping daily a lender is pleased as punch if S finds a buyer to just “take over” the old loan @ old high I rate.
But conversely if rates are rising that same lender wants to kill the old loan and force its payoff so it can re-lend its $ at higher rate…ergo no way is that lender going to allow its old loan to be assumed or to continue as-was.
No Seller should today anticipate that his lender is going to cooperate in keeping old loan alive.
One of these loans is at 6.75%, which would obviously be in the lender’s best interest to retain. But I’m not sure that it makes much of a practical difference. When I try to modify the insurance policy, either alarms will go off or they won’t. I have not seen any evidence that most lenders have the flexibility to modify their bureaucratic rules, even when it is clearly in their interest to do so, have you? If the policy does not look like it should to them, I would guess that their automatic response is going to be to get their own insurance and adjust my escrow accordingly. That would likely be expensive. Whether they actually foreclose is another question. Would it be possible to leave the existing policy alone and get another policy to cover my interest?
[QUOTE=REvestor;891385]What you want to do is get added as an additional insured. This may be a little easier if you first have the seller transfer title into a land trust with a trustee appointed by you. From there you would just have the insurance company add the trustee as ‘additional insured’.
I would also get a limited power of attorney from the seller to allow you to manage the property more easily. For this I would use your company name, preferably a “Real Estate Management” company.
If you intend to rent the house you would ultimately want to get a landlord policy. At the very lease have the renter get a renters policy to insure their belongings.[/QUOTE]
Exactly my opinion. Do this and you’ll be able to transfer insurance in the name of the buying entity. All the best!
Insurance on a Sub II deal…
These days… I don’t many deals where I put the properties into trusts… but, we still do alot of owner financing deals where the property is taken sub II… or my preference (sub 3)
So, Insurance is simple… Get a new policy… and name whoever owns the property as the insureds…
And then name the (seller-mortgagor) as the additional insured… and make sure that their name appears prominently on the paperwork that is faxed into the mortgage company… we like to circle their name so, that the $10/hr employee sees it and says ok… and move on… and of course if its an owner financed deal… name the mortgagees… which is usually the mortgage company and me…
I’ve been doing deals like this since way back in 1997… nowadays… I don’t do the buy then into a trust and lease option them thing… instead… I sell them… ALL… with owner financing… (wrap around note and deed and trust) Actually… I sell before I buy… it’s harder to go broke that way…
[QUOTE=Akeso;891206]I have searched the forum for information on this topic, but have only seen a few references without any specific answers.
When purchasing real estate subject to existing financing, and when that financing includes an escrow for insurance, how do you transfer the insurance into the name of the buying entity? I have a friend who recently tried to do this, and when he tried to change the beneficiary, the mortgage company would not allow the insurance to be in the name of anyone other than the mortgagee and mortgagor. This would seem to be a real obstacle for any “subject to” deal, and yet I have heard no clear discussion on the topic. Any help would be appreciated. Thanks.[/QUOTE]
You need to have an insurance company to help you with the task. It will be a lot easier to handle the situation then.
Britney…
Actually 9 out of 10 insurance companies
get confused as hell… and then… Just say NO…
So, it’s something you kinda need to know how
to tell them to set it up…
And if you do it like I outlined above… You’ll
be able to get it squared…
This is the biggest pain for leaving the loan
in place… but, well worth it… for the profits
that are made one is yield on cash if you
investing 20k to fix and flip a deal but, don’t have
to go get new bank financing…
And… two… for creating wraps… where the equity
grows each and every day…
John…
I disagree that a lender would want to
kill a loan in order to re loan the money out…
These days the loans are already sold off in
packages… and they’ve already made their
money… and now make money just servicing
the portfolio…
The last thing they want… is a loan back…
We have a very large loan we want to buy…
at a very low interest rate… 3% they want
even consider selling it… because right now
its performing… and they Quote “sold it off in
a package and now only service it”
We however know it will at some point very soon
end up in default… we are there just way ahead of
the game…