Hello fellow investors, Here is my situation and I only need advice on how to handle the insurance part of it:
I just bought an investment house and have a 30 year fixed including escrow on it. I already have a buyer I can owner fincance it to in which I sign him the deed and keep me as the lienholder. The new buyer pays me, I pay my loan, I cash flow, you know the routine. At this point, the new buyer needs to get thier own home insurance stating me as the lienholder. My question/problem is how do I avoid cancelling my current vacant home insurance without triggering the Due on Sale clause? Im thinking that when I go to cancel my insurance and the new buyer gets his, the insurance company will notify my lender. Any ideas would be very appreciated. Let me know if I need to explain it a little better.
Thank you
first, I’d never give up title to the property while you still have a current mortgage on it. Personally, I’d either go with a lease/option or contract for deed before giving up my rights as owner.
second, if you go another route, then insurance is much easier. You simply switch your policy to a landlord’s and have the tenant/buyer get contents (renters) insurance. Problem solved.
And yes, your lender must be notify of any change in the insurance policy as I’m sure that it was required in your loan package that a) you have insurance and b) that they are listed as additionally insured. If you become a lienholder you want to make sure that you have the same terms as well with your borrower.
Raj
Thank you for the reply, unfortunately because of texas laws, it is almost impossible to do a CFD and/or a lease/option. I found a great lawyer here in Austin who is known for doing wrap around mortgages and has done over 1000 of them and he said not one of them has ever been called back for the DOS clause. Im looking to go that route for now and have an apointment with him next week. We’ll see how it goes. Does anyone know how to do an owner finance in texas while being able to keep the existing insurance as landlord with tenants? Can this even be done?
Hi again,
Do you know what the Lease option Laws are in Texas? If so, please talk to me like I’m six 
As I’m not an attorney I can’t really give you any legal advice, so having a competent attorney in your state is indeed a good idea. I’m also not a licensed insurance agent, so you might want to talk to an agent knowledgeable about wraparounds to verify the insurance requirements.
I believe that you must be the owner, on the deed, to insure a property for loss. Therefore, if you convey title, regardless of who remains on the loan, the new owner would have to get the insurance. They would then have to name your lien holder as first loss payee, and they’d then be second loss payee as the owner. If you insure something for loss that you do not own then you may be crossing the line into the area of insurance fraud – this is what I’ve been told by the Commissioner of Insurance in North Carolina – you might check with the commissioner’s office in your state.
If I were in your position, AND if I could find a way to do it that did not violate the law – I have heard as you state that leases with options are getting harder to do in TX – I’d rent out the property with a small positive cash flow, then grant the prospective buyer an option to buy on a set of terms and conditions once they can qualify for a loan, then get a landlord policy the tenant-buyer gets a renter’s policy and you defer whatever maintenance your state laws allow to the tenant-buyer, all the details being spelled out explicitly in the lease agreement. You might hire a competent attorney to see if there is some other alternate to a typical lease-option that is possible in your state.
Sometimes wraparounds can become problematic because you’ve given much more control away on the collateral than in a lease-option or even contract-for-deed (or land contract) and I never give control away on collateral for a loan with MY NAME on it. That is in my opinion a risky play and in active investing, just as in business, mitigating your risks is a part of the game.
As a side note I was once asked to list various engagements of landlord / tenant or seller / buyer with regard to control and risk on the part of the investor. I listed them as follows:
I hope that your deal proves successful regardless which way you go.