Insurance and Information For Real Estate Investors

Tenant Couple Sues Landlord over a Haunted Rental House

Kelly Troy — Tue, 17 Apr 2012 17:04:08 +0000

So you’re a landlord and you maintain strong leases and good tenant-screenings - what’s the worst that could happen? How about being sued for renting a haunted house? Are liability suits arising from alleged paranormal activity covered in YOUR dwelling policy?

While most property owners are familiar with typical exposures such as bodily injury, invasion, or privacy, and wrongful eviction (which themselves are not even covered in most landlord dwelling policies because they are ‘personal’ injury issues), this is one of the more unusual and interesting liability issues that we at InsuranceForInvestors.com have seen in a while and we thought it was worth sharing just to prove the point that any property owner can be sued for virtually any perceived wrong. You don’t have to be guilty to be accused - but you must still pay legal costs to defend your innocence…

Read the Actual Story Below from CBS New York:

TOMS RIVER, N.J. (CBS New York) – Nighttime is fright time for a Toms River couple who claim the house they rented is haunted.

Jose Chinchilla and his fiancée Michele Callan say they hear eerie noises, that lights flicker, doors slam and a spectral presence tugs on their bed sheets. The couple even called in investigators with the Shore Paranormal Research Society. The group classified the activity as “paranormal” but that it did not indicate a haunting, according to their website.

Chinchilla and Callan are suing the landlord for their $2,250 security deposit claiming the paranormal activity forced them out of the home only a week after moving in. However, the landlord believes the couple was actually spooked by the $1,500 a month rental fee and made up the ghost story to get out of their lease. The landlord has filed a counter suit against the couple. A hearing is expected at the end of this month.

Read Original Story

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WRAP MORTGAGE FAQ’s – Why Can’t I Get a Quote With Just Giving Basic or Minimal Information?

Kelly Troy — Fri, 09 Mar 2012 17:33:51 +0000

We regularly get asked the question “How much does insurance cost?” before even having a chance to put together a quote. A good answer might be “How much does a red dress cost?” With regards to the dress, the answer is “It Depends”. What kind of dress? What size? What material? Which designer? What store? As you can see, there are many unknown variables that must be taken into consideration when answering that question.

The same holds true with insurance. We have many companies that we work with and in order to put together accurate quotes, we need certain information required by the various insurance carriers – both about the property itself as well as regarding the mortgagee and certain personal information for the named insured(s). With this in mind, we also have specific property information forms that we use to capture all of this information at one time. If this information is not provided and/or if the parties simply refuse to supply the information requested, we are not in a position to spend hours making numerous phone calls and repeatedly asking for this necessary data.

The danger with providing quotes with only minimal information is that they aren’t accurate and they will most likely change (increase) in premium once the order to bind the policy has been given and reports are pulled by the carrier and accurate data finally obtained.

WRAP MORTGAGE FAQ’s – Why Do You Need So Much Property Information And What Is The ‘Replacement’ Cost? In order to develop the amount of insurance needed to adequately protect the property against loss, known as the reconstruction or replacement cost, we must first need to know the physical characteristics of the property such as the square footage,...
WRAP MORTGAGE FAQ’s – Why Do Attorneys and Other Insurance Agents Provide Different Information Than InsuranceForInvestors.com? Who is Right? This is a somewhat precarious question to answer, but it normally comes down to just four reasons: (1) lack of investing knowledge, (2) inexperience (3) ignorance of the principals of insurance, real estate, and contract law, and sometimes (4) apathy...
WRAP MORTGAGE FAQ’s – Do I Need To Provide a Social Security Number In Order To Get a Quote? You are not required to give your SSN – but providing it can help (or hurt) your premium. Social security numbers are used by almost all insurance companies in order to search for past claim history as well as to...

WRAP MORTGAGE FAQ’s – Why Do You Need So Much Property Information And What Is The ‘Replacement’ Cost?

Kelly Troy — Fri, 09 Mar 2012 17:26:27 +0000

In order to develop the amount of insurance needed to adequately protect the property against loss, known as the reconstruction or replacement cost, we must first need to know the physical characteristics of the property such as the square footage, year constructed, number of bathrooms, construction grade, and so on.

As addressed in another question, the reconstruction or replacement cost value is not a number simply chosen at random. Most companies use the Marshall & Swift/Boeckh (MSB for short) data service to arrive at this value. MSB is a large global company which tracks the labor and material costs for every zip code in every county in the United States. Insurance companies pay millions of dollars each year to utilize the MSB service and when performing quotes, agents are required to input the various construction data about the subject property such as square footage, number of baths, exterior construction, construction grade, and so on. This information is then used to calculate cost per square foot and total reconstruction value for the insured property.

WRAP MORTGAGE FAQ’s – Why is the Reconstruction Cost Different than the Appraised Value or Sales Price? The sales price of a property is nothing more than an amount that one party is willing to sell it for and another party is willing to purchase it for. It has nothing to do with insurance. Similarly, the appraised...
WRAP MORTGAGE FAQ’s – What is the Difference Between “Replacement” Cost and “Actual Cash Value”? Replacement Cost (RCT) is the full estimated value that it is expected to cost to rebuild or replace the insured property with similar ‘like kind’ construction at current material and labor rates (explained more in the question below). For example,...
WRAP MORTGAGE FAQ’s – Why Can’t I Get a Quote With Just Giving Basic or Minimal Information? We regularly get asked the question “How much does insurance cost?” before even having a chance to put together a quote. A good answer might be “How much does a red dress cost?” With regards to the dress, the answer...

WRAP MORTGAGE FAQ’s – What Is ‘Surplus Lines’ Insurance And Why is The Premium Being Financed?

Kelly Troy — Fri, 09 Mar 2012 17:22:37 +0000

The Surplus Lines insurance market (sometimes referred to as the non-standard market) exists to provide insurance to clients with risks that are not allowable in the ‘standard’ market. These companies, most of which are “A-Rated” or better, are required to charge state tax and the carriers also charge policy fees. Some of the reasons a policy may need to be written in this non-standard market include:

The named insured has experienced a foreclosure or bankruptcy within the past 5 years

There are an excessive number of claims on the property

The property itself exceeds the carriers underwriting guidelines in terms of construction characteristics, age, or maintenance conditions

WRAP MORTGAGE FAQ’s – Can the New Buyer’s Insurance Premium Be Paid from the Seller’s Existing Escrow Account? Yes and No. Sometimes lenders will pay one party’s insurance from the other party’s escrow account, but other times they won’t. There is absolutely no rhyme or reason to when this happens and when it doesn’t, it is simply ‘luck...
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WRAP MORTGAGE FAQ’s – What Happens To The Money In The Seller’s Escrow Account?

Kelly R Troy — Fri, 09 Mar 2012 17:19:39 +0000

The money accumulating in the seller’s original escrow account will continue to do just that – accumulate. Although the seller may have agreed to transfer all monies in this account to the new buyer – that was an agreement between those two parties, not the underlying mortgagee, and this escrow account is still in the seller’s name. In most cases, the new buyer (or perhaps the seller) can send proof of the insurance policy being paid in full with money outside of this account to the mortgagee and request that funds be released from escrow as a reimbursement.

Unfortunately, any checks sent from this account for reimbursement will only be made out to the person whose name is actually on the account (the seller). This means that the seller will in turn have to cash this check and then send these funds back to the new buyer. This may have to be done each year. This is another inherent difficulty specific to subject-to and wrap-around mortgages.

WRAP MORTGAGE FAQ’s – Can the New Buyer’s Insurance Premium Be Paid from the Seller’s Existing Escrow Account? Yes and No. Sometimes lenders will pay one party’s insurance from the other party’s escrow account, but other times they won’t. There is absolutely no rhyme or reason to when this happens and when it doesn’t, it is simply ‘luck...
WRAP MORTGAGE FAQ’s – How Should The Insurance Be Managed When Setting Up Loan Servicing for a Wrap-Around Mortgage? This explains how the insurance in a wrap-around mortgage transaction should be set up to avoid potential future issues....
WRAP MORTGAGE FAQ’s – Why is Insurance So Hard to Obtain When Doing a Wrap-Around Mortgage? Quite frankly, insurance is designed for and is intended as a straight ‘one-to-one’ transaction whereby the insurance company offers to insure a property or risk for the owner while keeping the mortgagee (who has a financial interest) informed as to...

WRAP MORTGAGE FAQ’s – Can The Seller Of The Property Make Any Changes To The Buyer’s Insurance Policy?

Kelly Troy — Fri, 09 Mar 2012 17:16:02 +0000

NO. Only the Named Insured (Policy Owner) has the legal authority to make any modifications to the insurance policy, file claims, cancel the policy, or receive refunds.

WRAP MORTGAGE FAQ’s – Should the Seller Keep His or Her Original Insurance Policy in Place? NO. Contrary to common (and very incorrect) advice often given by many real estate, legal, and insurance professionals who should know better, the seller should not keep his or her insurance in place. Although this sounds okay in theory if...
WRAP MORTGAGE FAQ’s – How Should the Seller Be Listed on the Buyer’s New Insurance Policy? How the Seller of a property in a Wrap-Mortgage or Subject-To transaction is listed on the buyer's new insurance policy is very important. This is one of a series of frequently-asked questions about insuring wrap-around mortgages - and one that...
WRAP MORTGAGE FAQ’s – Can The Seller Just Transfer His or Her Insurance Policy To The New Buyer? No. Unlike real estate contracts; insurance contracts (policies) are NOT transferrable and they cannot be assigned from one party to another....

WRAP MORTGAGE FAQ’s – What Happens If The Buyer’s Insurance Cancels For Non-Payment?

Kelly Troy — Fri, 09 Mar 2012 17:14:24 +0000

Prior to cancellation for non-payment of premium, the named insured policy owner will receive several notices in order to make payment and keep the policy in force. If the policy does cancel, the named insured can contact us to make payment and we will have the policy reinstated ONE TIME if the carrier will allow it. If the policy cancels again for the same reason, we will consider this to be a non-performing account and we will not have the policy reinstated.

Note: The reason that we will only reinstate the policy one time for a non-payment cancellation is due to the fact that, in our experience, many wrap-around mortgage transactions are not set up correctly by the parties and insurance is only obtained AFTER the actual closing – with the new property owner electing monthly insurance payments. Many of these policies get monthly notices of cancellations and require numerous reinstatements simply because the insured fails to pay the bill.

WRAP MORTGAGE FAQ’s – What Are The Payment Options for Wrap-Around Insurance Premiums? Billing Plans vary by company, but generally speaking, insurance can be paid for in monthly installments, quarterly installments, or in full at one time. However, this should be decided PRIOR TO CLOSING. It is best to have the loan servicing...
WRAP MORTGAGE FAQ’s – Can the New Buyer’s Insurance Premium Be Paid from the Seller’s Existing Escrow Account? Yes and No. Sometimes lenders will pay one party’s insurance from the other party’s escrow account, but other times they won’t. There is absolutely no rhyme or reason to when this happens and when it doesn’t, it is simply ‘luck...
WRAP MORTGAGE FAQ’s – Why is Insurance So Hard to Obtain When Doing a Wrap-Around Mortgage? Quite frankly, insurance is designed for and is intended as a straight ‘one-to-one’ transaction whereby the insurance company offers to insure a property or risk for the owner while keeping the mortgagee (who has a financial interest) informed as to...

WRAP MORTGAGE FAQ’s – Can The Seller Just Transfer His or Her Insurance Policy To The New Buyer?

Kelly Troy — Fri, 09 Mar 2012 17:10:35 +0000

No. Unlike real estate contracts; insurance contracts (policies) are NOT transferable and they cannot be assigned from one party to another.

WRAP MORTGAGE FAQ’s – How Concerned Should the Buyer and Seller be About the Price of the New Insurance? Price is obviously an issue with all policies, but it should never be THE issue. You get what you pay for. Not all policies are the same (which is addressed in another question) and the price is usually indicative of...
WRAP MORTGAGE FAQ’s – Should the Seller Keep His or Her Original Insurance Policy in Place? NO. Contrary to common (and very incorrect) advice often given by many real estate, legal, and insurance professionals who should know better, the seller should not keep his or her insurance in place. Although this sounds okay in theory if...
WRAP MORTGAGE FAQ’s – How Should the Seller Be Listed on the Buyer’s New Insurance Policy? How the Seller of a property in a Wrap-Mortgage or Subject-To transaction is listed on the buyer's new insurance policy is very important. This is one of a series of frequently-asked questions about insuring wrap-around mortgages - and one that...

WRAP MORTGAGE FAQ’s – Will The Mortgagee Call The Loan ‘Due’ If They Find Out That The Property Has Been Transferred?

Kelly Troy — Fri, 09 Mar 2012 17:08:14 +0000

This is entirely up to the underlying mortgagee. Unfortunately, this is an inherent risk in all wrap-around mortgage transactions. While no absolute answer can be given, it has been our experience at InsuranceForInvestors.com that mortgagees will rarely call any loan due so long as it is performing and payments are being made. Again, this is the decision of the original lender, but it is very unlikely.

WRAP MORTGAGE FAQ’s – Will The Underlying Mortgagee Be Notified Of The New Insurance And Will This Inform Them That The Property Has Been Transferred? Yes – the underlying mortgagee will be notified of the new insurance. Any time a policy is issued and a mortgagee is listed in the policy, that mortgagee automatically gets a new evidence of insurance mailed to them by the...
WRAP MORTGAGE FAQ’s – How Should The Insurance Be Managed When Setting Up Loan Servicing for a Wrap-Around Mortgage? This explains how the insurance in a wrap-around mortgage transaction should be set up to avoid potential future issues....
WRAP MORTGAGE FAQ’s – Can An Agent Send a ‘Modified’ Copy of the Insurance to the Mortgagee With the Seller’s Name Listed on the Policy Instead of The Buyer’s Name? NO. Although the agent may not be misleading the insurance company itself, he or she is committing an intentional fraudulent act with regards to another insured party in the insurance contract (the mortgagee / loss payee)....

WRAP MORTGAGE FAQ’s – Will The Underlying Mortgagee Be Notified Of The New Insurance And Will This Inform Them That The Property Has Been Transferred?

Kelly Troy — Fri, 09 Mar 2012 17:04:33 +0000

Yes – the underlying mortgagee will be notified of the new insurance. Any time a policy is issued and a mortgagee is listed in the policy, that mortgagee automatically gets a new evidence of insurance mailed to them by the insurance company (not the agent or agency) issuing the policy. The mortgagee and any additional insureds or additional interests are also notified if/when the policy cancels for any reason.

WRAP MORTGAGE FAQ’s – Will The Mortgagee Call The Loan ‘Due’ If They Find Out That The Property Has Been Transferred? This is entirely up to the underlying mortgagee. Unfortunately, this is an inherent risk in all wrap-around mortgage transactions. While no absolute answer can be given, it has been our experience at InsuranceForInvestors.com that mortgagees will rarely call any loan...
WRAP MORTGAGE FAQ’s – Why is Insurance So Hard to Obtain When Doing a Wrap-Around Mortgage? Quite frankly, insurance is designed for and is intended as a straight ‘one-to-one’ transaction whereby the insurance company offers to insure a property or risk for the owner while keeping the mortgagee (who has a financial interest) informed as to...
WRAP MORTGAGE FAQ’s – Can An Agent Send a ‘Modified’ Copy of the Insurance to the Mortgagee With the Seller’s Name Listed on the Policy Instead of The Buyer’s Name? NO. Although the agent may not be misleading the insurance company itself, he or she is committing an intentional fraudulent act with regards to another insured party in the insurance contract (the mortgagee / loss payee)....