Re: subject to insurance question - Posted by Brad Crouch
Posted by Brad Crouch on April 04, 2007 at 22:29:05:
you say,“My question is since the seller’s original mortgage co is covered . . .”
Why would you think that?
Once the original seller is off the title, the insurance company is no longer obligated to pay any claims on the policy he bought. So the original policy that the original seller had, is now without value. It is only kept “in place” to avoid the notification to the lender if the policy is altered in any way.
If you sold the property on a contract for deed, the title of the property is not in the name of the buyer, so I would consider the policy “suspect” because the new buyer is not yet on title. It may only be a “renter’s” policy . . . which is a good idea for him to have, but don’t confuse that with “hazzard” insurance designed to protect a homeowner.
Probably best and safest (in my opinion) to leave the original policy in place even though it has no value, except to keep the lender from being notified of the recent “activity” on the property. Then get your own policy in the name of the trustee of the trust that holds the property.
The policy would read John Doe, as trustee for the XYZ trust and the beneficiaries ATIMA (as their interests may appear). Make no mention of a “leinholder” to the insurance company. As one of the beneficiarys (I’m assuming you are), you would get paid if a disaster ever happened. You need to make a quiet vow to yourself that if the worst happened, you would use any proceeds you receive, to pay off the underlying mortgage. You need to make the mortgage holder “whole” for all this to work smoothly and without negative ramifications further down the road.
The new buyer should pay the insurance premiums to you, and then you make the premium payments to the insurance company. The new buyer makes these payments to you in addition to his own “renter’s” insurance.
Hope this helps,