Sub2 Insurance claification for Javipa (and others)

General Real Estate Investing
1

Hi Jay,

Would appreciate your input.

I have a potential first sub2 transaction and am trying to piece together the insurance issue - as everyone seems to have a different strategy regarding ins.

In another post you mentioned -

"Meantime, maintain the original borrower's insurance policy, add your name as additional insured, but convert it (if not already converted) to a landlord's policy. Then, obtain a new 'landlord's' insurance policy in your name (trustee's name, etc.) alone, and maintain both policies until you refinance or otherwise pay off the original loan."

My insurance co says if the situation is as above and a claim is made on the new landlord’s policy - most likely they will not pay since the ins. cos. are just looking for an excuse not to pay and having 2 policies, one with the original seller as named insured, can be problematic since the original seller no longer has an insurable interest.

What are your thoughts? Have you ever filed a claim successfully with the above scenario?

Much appreciate your contribution to this forum.

2

Dallas,

I would make one clarification on what you understood me to say about the seller being an ‘additional insured’ to your policy. It should be understood that you are “adding YOU” to the original seller’s policy (OSP).

Meantime, if you get two policies, they only cancel each other out, if you’re trying to double dip. That’s not the objective. The only policy you’re going to tap, if things happen, is YOUR policy, not the OSP. The OSP is there for looks.

All that said, you can cancel the OSP once your policy in in place. The issue is, not flagging the $7.25/hr minnow at “BS of A” bank, and starts sniffing the title chain.

Even so, most loan servicers will be aware of an ownership/title transfer within 9 months. The questions for them will be: How much more interest can we capture on this loan? How much equity is there, if we want to foreclose? How much money can we make in fees by forcing a refinance?

If their answer to any one of those questions is, “enough,” you’re screwed, regardless of the insurance coverage.

Back at the ranch, talk with YOUR insurance company, and find out what their payout policy is when/if there are “two simultaneous policies” in effect.

Keep in mind, one is a ‘beauty policy’ and the other one is the ‘effective policy.’

All that said, I could give you at least 4 other insurance strategies for a Sub2 deal, but that’s reserved for the folks that pay out the nose for my advanced Sub2 financing course. :beer