My brother got the deed from a previous homeowner. The house is a rental. My brother continue making payments on the property. His insurance agent called him telling him that the lender. is questioning why the policy is written under my brother’s name no in the name of the homeowner. My brother told the agent that he is the trustee of the property, no the one on the deed, because he is afraid it will raise a red flag with the lender to find out the title has been transferred and the lender will take my brother to foreclosure. Please help me how to deal with this agent from hell asking all this questions. Can someone please give me an insight about this issue.
Thanks a lot for your time and quick response…
Your brother probable should have had a title or escrow company service the agreement effectively keeping the underlying documents in effect and wrapping the existing mortgage. (Whether a recorded wrap or a documents signed in escrow but un-recorded)
It is not likely the lender will even call the note considering the meltdown that’s occured and the fact this is performing paper if the payment, insurance and taxes are being paid.
I just re-read your posting, probable insurance should be placed through a servicing account with the seller who holds the loan as primary insured and your brother as either co-insured or named as additional insured.
The title or escrow company can advice you on whether it’s co-insured or additional insured.
Your brother was correct to get his own hazard insurance policy with himself as the named insured. Your brother was wrong to lie to the insurance agent about his ownership interest in the property.
It was stupid of your brother to tell the insurance agent that he is the trustee and not on the title. An experienced insurance agent knows this is a lie, because property held in trust is normally titled in the name of the trustee. At the very least, the agent may want to re-write the policy in the name of the trust with your brother as trustee. What will your brother do when asked to produce a copy of the executed trust?
The former homeowner’s hazard insurance policy is worthless because the former homeowner no longer has an insurable interest. If a claim were to be filed against the former homeowner’s policy, the insurance company will deny the claim.
The technique of having the former homeowner add your brother to the former homeowner’s policy as an additional insured won’t help, since an additional insured is not the same as a “named” insured and any claim your brother might submit as an additional insured will also be denied.
Some subject to buyers maintain two insurance policies. One in their own name as owner of the property so they have an insurable interest should a claim need to be filed. The second policy is the former homeowner’s policy so the lender is not alerted to the title transfer. I don’t know how the insurance companies view this practice, but I am sure that somewhere in the insurance world, a co-insurance relationship will be identified and neither policy will pay a claim, on the grounds that the policy is either invalid or secondary to the other.
Have your brother come clean with his insurance agent and seek his direction. Chances are the mortgage lender will do nothing when advised that there has been a change of ownership provided the loan is current. If they do something, most likely they will ask your brother to complete a loan assumption package to get the loan in his name.
I still at a loss on why anyone would care if the lender knows a transfer title has taken place…
Michael the lender cares because of what is in the purchas agreement. It is what is known as a DUE ON SALE clause. Meaning the bank is due their money on the sale of the house. Do they always inforce this Clause? No. Will they start to? Possibly. My recommendation to ALL SUB 2 investors. Do everything legal. NOTIFY the Bank. Don’t try and hide it from them. They CAN and HAVE taken people to court for this and it is CONSIDERED FRAUD if not done properly. Here are the proper things to due. Get the Deed. Transfer Insurance in to your name. Send a certified letter to the Mortgage company Informing them of the transaction. If they take payment and do not reply most courts will see this as them accepting the fact you are taking over payments and wil side with the investor.
The terms of a purchase contract typically do not influence the terms of a note… The only time I see this is when I receive seller financing from the seller and all of the terms are included in my 12 page contract to purchase.
As for notifying the lender typically there are 4 methods and none need to be certified mail.
- Request through escrow a bene statement from the lender for a loan payoff amount not a balance owed.
- Send to the lender a new insurance cert naming the new buyer
- Send checks in the name of the buyer to the lender for mortgage payments
- Record the deed transfer and give the lender constructive notice.
BTW here is the paragraph that deals with calling a note due upon transfer… Notice it reads “May”
Paragraph 17 of the standard “Single Family Form” which is used almost always for mortgages on one- to four-family mortgages in the U.S. reads as follows:
17.Transfer of the Property or a Beneficial Interest in Borrower. If all or any part of the Property or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person) without Lender’s prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument.