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What’s The Best Way To Structure Insurance In Different Deals
Joe: Hey, It’s Joe. I’ve got another question here. This one is from Walter Peterson. “What’s the best way to structure insurance in subject to and owner financing land contracts? In the for rent method, obviously, the seller keeps their insurance in place but with the other two is it best to have your own policy with the seller and their lender additionally insured, or have to separate policies, meaning you have one and the seller and lender have on? I don’t think you’ve ever given an exact answer on this.”
Joe: Yes. The way to do this, if you’re doing subject to or land contracts, and you’re a landlord, you’re not living there, then you’re going to want landlord insurance. And the way you do this as a subject to is, you have them fill out the form that we’ve got for subject to giving you permission to talk to and modify the insurance with their insurance company. You send in that to them, you cancel the insurance policy and you open a new policy in your own name with the buyer as additional insured. And of course the bank as additional insured. If you don’t know how to do this all you have to do is talk to your insurance person and they’ll be able to do that for you. It’s not difficult. It’s something that they do all the time so they can set that up for you.
Joe: Then make sure you get some liability insurance as well. It’s very inexpensive to get $1 million worth of liability and just do a blanket policy for all your different properties and they can do that and it won’t add very much per month to your insurance policy.
Joe: So that’s all you need to do. You don’t need two different policies. You only need one. As soon as you get a new insurance policy, then the bank is going to know that that property is being handled by somebody else. So that brings the due on sale clause. A lot of people are afraid when doing subject to’s of the due on sale clause the lenders have on most mortgages, 99.9% of mortgages have a due on sale clause. And that gives the lender the right to foreclose on a property or call it due if the seller transfers the property. But, I don’t see that happening. I’ve actually never seen it happen, and we’ve done subject to’s hundreds of times and if you take all the people I’ve worked with, thousands of times and I’ve never seen it happen.
Joe: I’ve seen the bank threaten it a couple of times. I even had Bank of America call me once over a property that I’d owned. I’d owned it for seven or eight months and they called me and said, “You need to take this loan out in your name or we’re going to have to take it back from you.” I said, “I understand. I bailed this guy out and I’m making the payments and I’ve been making the payments for seven months. I know he can’t make the payments. I’m not going to put it in my name. So if you have to take it back I understand. But as soon as I get the Notice of Default on this property, that’s the last payment that I’m going to make. So I want you to understand that.” And she said, “I’m sorry. That’s what we have to do.” I said, “I understand.”
Joe: She hung up. Fifteen minutes later she called me back and said, “I just talked to my supervisor. He said please keep making your payments. We’re not going to file a Notice of Default.” I said, “That’ great.” And we continued to make those payments as of today. So that’s never been a problem for us even though they’ve threatened us a couple of times in ways like that that never came to fruition.
Joe: That’s the only issue with this insurance and the reason why some people don’t like to transfer the insurance. You can leave it in the name of the original owner, but if the roof blows off and you have to get an insurance claim, then the check is going to be made out to that owner not to you. You want it to be made out to you and you want it to be your policy so that you know that you’re covered, and you’d like to have a liability policy on top of that. And landlord insurance is a little cheaper than homeowner’s insurance. So it should be landlord insurance. If you’re going to live in that property and you’re taking a subject to, then you should get homeowner’s insurance on it because that’ll cover you in a different way. Talk to your insurance guy about this because he’ll be able to help you without too much problem.
Joe: The only thing you need, if you’re doing subject to, or if you’re doing a land contract, is to make sure that policy, you have a little document that says you have the right to talk to the insurance company and modify their insurance. And that way they’ll also send you the check for the balance. Because if they just paid the insurance that year for the entire year, because they do it once a year, if they’ve paid that insurance already for the year, then you want to get a refund for that because you’re going to have to pay a full year policy to your new insurance company. So you want to get a refund from the old one to make up for the money that you’ve put out. All right, hope that makes sense.