$Cash$ - Insurance question
$Cash$ - I apologize if this has been asked before and I was unable to locate the answer. I have Bronchick's AREF and the checklist says to obtain a new insurance policy if you take a property "subject to" in your company's name instead of in a land trust. Do you do this, or do you let the dice roll as to whether a lender will do anything when they see the change of insurance? I am asking because I have been asking RE Attorneys and Insurance Agents about getting the insurance policies and they keep saying that insurance underwriters only want one policy on the property for "homeowner" or "landlord" coverage. Am I asking the wrong people? Thanks for the info.
JMW
jmw,
Gald to meet you.
The way I cover this is I have the Seller sign a letter to the insurance company changing the policy from a Homeowners policy to a OLT, Owner Landord Tenants policy.
If you are using a Land Trust to hold title to the property then send a letter to the Insurance Company stating the Land Trust is an Additional Insured, a Property Management Company is authorized and has been appointed to negotiate, submit claims collect claims etc., for the property.
Send all correspondence to Joe Doe, the Property Manager, regrding insurance matters. Please make all checks payable to the Property Manager.
Cancelling an Insurance Policy is in my opinion a bad idea, the way I pointed out has worked for me many times. Many times this can be a 'flagg' to the lender, it is not worth messing with.
No change of Agents, or Insurance Companies, a simple letter stating the facts. The policy is still in the name of your sellers (so no 'flagg' to the lenders) however you are now in control of the insurance policy. You should also have a Standard Power of Attorney to back this up plus any other matters that may come up.
John $Cash$ Locke
[ Edited by JohnLocke on Date 02/11/2003 ]
If you (or your entity) own, or have a financial "stake", in the property, be the "first named insured". The first named insured is the primary recipient of any potential claim benefit or liability protection. An "additional insured" will garner liability protection only. A "loss payee" will have it's interests protected in the event the property itself is damaged. (A mortgagee is inherently BOTH). If the fact that a DOS clause is/would be invoked if the insurance policy changes, I would walk away before potentially diminishing or even sacrificing coverage by trying to "skirt" the correct way to insure the property.
Hi $Cash$,
If you dont take the property in a Land Trust, and I simply take the deed in my corporate name, is it possible to still use the method you mentioned above?
BAMZ
To avoid sounding argumentative, I wanted to shed a little more light on this DOS and insured/policy issue that is vital. Once you advise the insurer to change the type of policy, a new contract must be issued. The policy itself ("Owner Landlord"
is a different type of policy from an underwriting and pricing standpoint. New contract, new first named insured...the insurer is obligated to honor the contract provisions primarily to this entity, not the manager of the property. Any additional insured or loss payee respectively is/would be protected, but only if so NAMED as such on the contract. What is described may "work" to avoid the DOS clause of the morgtgage company from coming into play, but could bite back in the event a claim occurs...
[ Edited by norrist on Date 11/13/2003 ]
[ Edited by norrist on Date 11/13/2003 ][ Edited by norrist on Date 11/13/2003 ]
Once you advise the insurer to change the type of policy, a new contract must be issued. The policy itself (Owner Landlord) is a different type of policy from an underwriting and pricing standpoint. New contract, new first named insured...
BAMZ,
As we move through our creative real estate investing careers there are creative attorney's, accountants, title companies and insurance people. I always suggest put the creative people on your team and let the conventional thinkers keep thinking about what they are missing.
I just recieved an email from someone who contacted an attorney to review their contracts, upon reading what this attorney had to say we are all doomed to the depths of the nether lands forever for practicing creative real estate investing.
I only speak from having been there and done that, many, many, times if something changes, then I will find a way to creatively make the changes without violating any laws.
When I first started Subject To investing the Realtors were calling me off my ads and telling me it was illegal to do what I was doing, I mean strong words were used when they called me and how dare you buy and sell houses without a license.
About one year after I started creative real estate investing the real estate agents where doing Subject To deals. Guess they firgured if they can't be um might as well join um.
So, you will hear many different opinions about creative real estate investing, just keep in mind who is giving the opinion.
If you don't believe me ask two competing politicians about one another during election time.
John $Cash$ Locke
Thanks $Cash$! I appreciate your thoughts and wisdom!
BAMZ
There is a difference between "creative thinking" and covering your bases. I can pass on many horror stories of coverage and claim denials, or investors left without the protection when all the proverbial "t s and i s" weren't dotted and crossed. If you want to take the chance that you'll be protected, by all means, do just that...take the chance! I am by no means being cynical or pessimistic, just relaying experience, from the "advisor" as well as the investor side. Good luck![ Edited by norrist on Date 11/14/2003 ]
Man Norrist. IT sure seems like you take this subject a little too personal.
Chill a little.
Tom
I'm simply, though unnecessarily, defending my position (and my status as a creative thinker, let alone investor)! I may not be an "expert" but find it frequently frustrating in my "profession" to dispell misconceptions and battle the misinformed. No need to chill...life is great (no kidding). With the exception of our 4 year-old with the flu![ Edited by norrist on Date 11/15/2003 ]
Norrist, sorry about the 4 year old with the flu. I don't remember anyone saying that you are not creative. So I can't see a reason why you need to defend yourself. And if someone said that then I say "SO WHAT.' They don't know you. They don't know me. I appreciate hearing different sides of the story and you said one side I haven't heard. Just do what makes you feel comfortable and forget what everyone else says. If they don't want to listen then they may find out if you are correct or not. Keep posting.
Tom
Norrist,
I am reading with great concern and interest about the insurance issue
My question is
Have you personally invested in subject to deals?
and if you were to, how would you word the notice to insurance company?
Heres a thought...
Have you considered, instead of a letter to the insurance company attempting to amend the policy (which I would say I've never found an insurer that can/will convert an HO policy (homeowners) to an OLT policy (commercial). They are separate and distinct contracts. Instead, consider adding yourself as an additional insured (for liability purposes) and then sign an agreement with the seller whereby they agree to assign the right to collect any and all insurance proceeds in the event of a claim or loss to you. With this assignment would be a Power of Attorney authorizing you to sign any and all documents, including receiving any claim checks and endorsing them, on their behalf. I would think that the insured's right to collect payment is, like any other contract right, assignable to a third party. Norris do you have any thoughts on this?
jorge121,
This is what I am talking about there are conventional thinking attorneys and creative thinking attorneys glad you are the later.
I will be wintering in Florida so be prepared to feed me when the call comes. I have not forgotten.
John $Cash$ Locke
I didn't really want to post because my fingers are allready bleeding from the keyboard today.
This may not be a topic to get lazy on.
I never had a property claim however in my personal due diligence, I have spoken with my broker who is not in favor, but the this is how it works.
Property is covered. The bank has makes sure they will get paid if there is peril. Power of attorney is fine.
Landlord policy is different than occupancy policys.
If there is an occupancy policy and a "tenant" is in the house with a property or property lien type claim, you won't need a lawyer the bank will fight for settlement. Insurance companys know this so they pay.
The tenant must have personal property insurance so have him get liability coverage wile he is at it.
You can allways add another policy however, if the loss is large and the investigation find out there is two policys. The battle may extend to wich company will pay for what. "So add your new policy with the same company" my broker says.
I have 3 years paying (and denying) property and liabilty claims, then 12 years advising investors on the proper and most value conscious methods to avoid the coverage pitfalls. I have never invested personally in a subject-to deal, but have as a "silent" partner in a few. The POA with the owner isn't nearly as powerful as a "loss payee" (LP)endorsement. I still feel being the first-named insured is the best, but a LP endorsement in conjunction with the aforementioned additional insured (liability) endorsement is a better backup (than the POA). Bottom line, you (or your respective interest or entity) should be named and protected on the insurance contract itself. Relying on the POA regarding any potential insurance proceeds would be a step further down the ladder of strategies.[ Edited by norrist on Date 11/15/2003 ]