Original message
| chan lipscomb
  |  "insurance for the real estate investor (long)"
, Thu 1 Feb 16:28 
matt asked me to post some information on insurance problems for real estate investors. i have been a property and casualty agent in florida for 12 years, and a real estate investor for 5, so i have come across some interesting situations. i want to address insurance concerns in 3 situations...land contracts, subject-to's, and lease options.
the main issue we are going to deal with here is "insurable interest". in laymans terms, insurable interest has to do with who loses financially when there is a loss. this is USUALLY the owner...the person with the deed. but in our world, the financial risk may extent to a lessee or a benny of a trust. insurance companies, underwriters, and adjusters often have a hard time with this. so to make our lives easier, we need to think about who is holding title, and who has insurable interest.
Land contact: most insurance companies are pretty familiar with these, however, some will not insure properties bought on LCs. when you are BUYING, you will probably not have trouble getting insurance in your name. when you are SELLING, you still have a liability exposure, since the property is in your name (you guys that by LC's in the secondary market, take note). 2 solutions...have the buyer list you as an additional insured on their policy (and dictate liability limits to your liking), or carry a seperate liability policy (which is what i do).
Buying Subject To: many have just added their names to the sellers policy and left it in place. however, the seller no longer owns the property, no longer has insurable interest, but it still the named insured. the policy is invalid. the company could walk away from you. you need to buy insurance in your own name, or the name of your trustee if using a land trust. well, you say, that will clue the bank that something is up. yes, it will. so, double insure. it won't kill you. i have also heard of buyers getting the insurance company to change the named insured on the existing policy from the seller to the buyers name. if you can do that, great, but you will probably get resistance from the company...they will want to re-write (side note, if you do go this route, pay attention to the liablity limits...they are probably inadequate. also, the policy form should change from a homeowners form to a rental form...this could force a re-write in itself).
Buying on Lease Options: in this case, since title does not transfer, you can leave the existing insurance in place (because the named insured is still in title). just have yourself added as an additional insured. two things to pay attention to...make sure that the liability limits are adequate, and make sure that the policy for gets switched from homeowners to renters. even with this, i think it is a good idea to have a blanket liability policy that you can schedule properties on. maybe its a belt and suspenders approach, but a commercial general liability policy should not cost you that much (maybe $100 per year per property), and you will sleep better.
i hope the answers more questions than it creates. if you have questions, email me at chan@crrates.com. i will post all answers that might have broad appeal publically.
chan
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| | chan lipscomb
| "Re(2):insurance for the real estate investor" , Thu 1 Feb 18:54
if you are double insuring, DO NOT tell the agent about the mortgage. if you list the mortgage holder, they will get a copy of the policy and know that something is up. the mortgageholders insurance requirements are satisfied by the sellers original policy, which is probably escrowed and automatically renewing.
if your attitude is "i don't care if they know", then you are probably going to cancel the original policy when you write the new policy in your name. then, yes, list the mortgageholder. at least they won't be able to complain about you violating the insurance requirements as well as the due on sale!
the slickest way to this that i have thought of is using a land trust (i assume that most people here are familiar with this technique). when i set up the trust, i mail a copy of the trust (with the seller as benny), the deed from the seller to the trust, the cancelation form on the old policy, and a copy of the new policy with the named insured Joe Blow as Trustee of Florida Land Trust 1234. attached is a letter *from*the*seller* stating something like "upon the advice of our financial advisor we are placing our property in trust, please see the attached deed and insurance docs". looks perfectly innocent on thier end. and now i have one policy that i set up to my liking with my trustee as named insured. this policy is orginally written with the seller as additional insured, then a few days later i change the additional insured to myself. the lender will probably get a copy of the endorsement, but it will just get filed. if you really want to be sneaky, list the wrong address for the lender on the original policy, so that when the endorsement gets processed, it doesn't get to them (remember, they got a copy of the policy from you at closing). wait a few weeks, then correct the address.
long answer to a short question :-)
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