Sub-to insurance question. [Archive] - Magic Bullets Family Forums

steve55121

03-30-2005, 07:45 PM

Jim/anyone

I have a question about buying sub-to. I'm trying like everyone else to side step the DOS. I was wondering what you do when you take sub-to. Do you keep the current insurance policy in place and then take out a second insurance policy that has the trust named as the beneficiary?. I have heard you cannot change the existing policy to a landlord policy because the insurance companies do not change policies they only cancel and then re write them. You would not be able to do this since you would not be able to sign for the current owner of the property. I have heard insurance companies will only pay claims to who is on the title of the home. Thus buying sub-to you need to keep the current policy in place and then take out your own policy that is a landlord hazard insurance policy.

Please shed some light on this. I’m getting close to doing a sub-to deal and I’m confused on how the insurance works.

-Steve

Jim FL

03-30-2005, 10:23 PM

Steve,
Since I responded on my forum to this very same question before noticing it here, if you don't mind, so others can read it too, I'll just cut/paste that response here...hopefully Dan won't mind.

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Steve,
No offense, but I think you are confused on more than just the insurance issue here.

Example:
You said:
" have heard you cannot change the existing policy to a landlord policy because the insurance companies do not change policies they only cancel and then re write them. You would not be able to do this since you would not be able to sign for the current owner of the property. I have heard insurance companies will only pay claims to who is on the title of the home. Thus buying sub-to you need to keep the current policy in place and then take out your own policy that is a landlord hazard insurance policy."

I need to correct you here.......when you BUY a property subject to the existing financing, YOU own the house.
Title will be held by YOU, or an entity you create.
The original barrower, your seller, no longer has ANY claim or interest in the property, no matter what.
They are still liable for the mortgage, since they signed for it, but do not own the house anylonger.
Should you default on the mortgage, it will damage the sellers credit, but they will have no recourse against you, other than to sue you for wrecking their credit.

As for insurance, why keep the existing policy in place, and pay for it, when it is no good?
Then, to ad insult to injury, pay for yet another policy?
I don't like to throw money away, and would never encourage anyone to do so.
That is basically what you'd be doing with the above scenario.

So, instead, cancel the old policy, chances are, its an owner occupied policy anyway, if not, then sure, you might be able to change the insured, but probably not.

Go to state farm, or a local independent insurance broker, and get a fire and hazard landlords or rental dwelling policy on the house.
Name the trust as the loss payee/insured, or trustee, and give the insurance agent the lenders info, account number and contact info.
The insurance agent, or broker, if the insurance is escrowed with the payments, will then make the arrangements with the lender for payment.
or
If the insurance is not escrowed with the payments, the insurance agent will simply notify the lender of the coverage, as per the mortgage documents.

Now, some people seem to think that this little bit will 'tip off' lenders, and cause loans to be called due.
I completely, and totally disagree, if for no other reason, than the fact that I do this ALL the time, and have NEVER had a loan called due.
Lenders simply want to know their collateral is secure and covered with proper insurance, and that payments are received on time etc.

The due on sale clause is really a non-issue, so look at insurance as a business decision, which it is.
Why pay for two policies, when only one will actually pay out, or be used.

If you are hankerin to pay for extra insurance, drop me an e-mail for my mailing adress, I'll gladly let you pay for some of mine. :-)

HTH,
Jim FL