How to Deal With Insurance on Every Type of Deal
I know you think insurance is boring. I do too. But we both know that it’s extremely important because if you don’t have insurance you could easily go bankrupt if disaster ever struck. So when it comes to all of your real estate deals you have to make sure that you’re properly covered.
First let’s start with the “easy†type of deal – wholesaling. When it comes to wholesaling you really don’t have to worry about anything at all, or get insurance on the property. You are simply the middleman and it’s up to the buyer you assign the contract to, to get their own insurance. When it comes to lease options, you don’t own the house so you won’t be getting any insurance on the property.
However, with lease options you have an interest in the property (your option agreement) so you need to make sure the seller has proper insurance on the house. Also, you need to have the seller add you (or your LLC) to the insurance as an additional insured. Why? Because, once again, you have an interest in the house so you need to be added to the policy. This is very simple to do. Just have the seller call their insurance company and add you. It shouldn’t cost them any money at all and should take less than 5 minutes. On a lease option deal you’ll want to see proof of insurance and proof that they did indeed add you as an additional insured.
Subject-to’s are where people have the most trouble. But they’re very easy too. On the day of closing your subject-to deal, you will have the sellers cancel their insurance policy and you will get a new policy on the property. (Just like a regular home closing.) Since the mortgage is going to remain in the seller’s name, you will need to add the seller as an additional insured on your new insurance policy. You’ll want to get a standard landlord/tenant policy and that’s it.
Now, one of the questions I always get is, “aren’t the banks going to know that I bought the house and couldn’t this trigger the due on sale clause?†Yes, they are going to know and no, they could care less that you bought the house as long as you make the payments every month. I’ve told a few people this before, that a few times I’ve forgotten to fax the mortgage company my new insurance so they can see the house is still insured. I’ve received a letter in the mail that said something along the lines of “We noticed you don’t have insurance on 123 Main Street, you have 30 days to provide proof of insurance.†Whenever I got one of these letters, I would simply fax to the mortgage company my proof of insurance and everything would be taken care of. Piece of cake.
One of the other questions I get a lot is, “Jason, my insurance company won’t let me insure this sub-2†or something like that. Well, with everything in life, just find a new company. I use Erie Insurance and have never had a problem. Like I mentioned earlier, I know it’s not exciting, but please make sure you understand the insurance you need on every deal you do. I’d hate to see your finances ruined by a stupid insurance mistake.
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