While rental, renovation, and new construction are the most common types of investments we work with, REInsurePro is able to cover more creative investment strategies as well. Let’s look at some of these popular strategies and how we insure them the right way.
Lender-Placed Insurance
Our advice to private money and hard money lenders in the real estate investment space is to force-place insurance on a property as soon as the borrower’s coverage is cancelled or is determined to be insufficient.
In this scenario, the lender purchases coverage for their interest in the property. The lender then passes that cost on to the borrower. The purchased coverage should match the outstanding loan amount. Should a loss occur when the borrower’s coverage is not in force, the lender is still protected.
Subject To
A Subject To deal involves an investor purchasing a property subject to the existing mortgage. The investor takes over payments and, as they are now responsible for this property, needs to secure insurance.
REInsurePro is the only agency able to insure these types of properties the right way. The named insured for the coverage is the investor who purchased the loan. The mortgage company is listed as the mortgagee and will show up on coverage documents. This is an important step to make sure the loan is not called due.
We recommend never allowing the seller of Subject To properties to keep their homeowners coverage in force. The seller is already under financial hardship. If a loss happens, the seller receives the claims check. They could take the money and run, and now the investor is left with an uninhabitable building and no claim money coming back to them.
REInsurePro does add the seller as an Additional Interest on the liability Certificate of Insurance. Should there be a liability loss where the buyer and seller are named in a lawsuit, the seller would have coverage. We do not add the seller as an Additional Insured on the property coverage or list them as a named insured on the property policy. If an investor suffers a loss and the seller’s name is on the policy, it is also on the claim check. We also don’t want the investor to have a check they are unable to cash if they can’t reach the seller to get it signed.
Non-Performing Notes
Right now, investors are able to purchase a non-performing note for about 10-50% of its value. This strategy can be very appetizing for investors to either flip the property or find a way to turn it into a performing note.
REInsurePro makes sure that investors, as the note buyer, are insured while the terms are being reworked or while the home is being foreclosed on. Investors want to be sure that they are properly insured for anything that they own, including liability and property coverage. Insurance should cover the amount of the note that the investor purchased.
IRAs and Trusts
These are locations that are owned by an investor’s IRA or Trust as opposed to themselves (individual) or their LLC. These locations can be insured on the same or different account as locations owned by other interests but must have their funds separated. REInsurePro can insure these types of owned locations because we have the ability to separate the billing.
Tax Sale
When a homeowner or investor of a real estate property reaches a certain point of delinquency in their property taxes, a tax sale of the property occurs. There are two types of sales: Tax Lien and Tax Deed.
At a Tax Lien sale, the liens on the home are auctioned off to the highest bidder. The bidder who purchases the liens has the legal right to demand lien collection, along with interest, from the property owner or homeowner. If the owner is unable to pay the liens due, the bidder who purchased the liens can have the property foreclosed on. At a Tax Deed sale, the entire property is sold, including all unpaid taxes, at an auction.
Some investors purchase these properties sight unseen. Oftentimes that purchase comes with additional risk, so it is important for the investor to have the property insured as soon as it’s purchased at auction. Although it is possible that the property is bought back by the previous owner or seller, investors should cover their interest by purchasing insurance.
Land Contract
Here the buyer finances the property by making installment payments to the seller (investor). REInsurePro insures these transactions throughout the entirety of the land contract. The investor maintains the title to the home, and therefore should be the insured party, until the loan is paid off. The buyer can be listed as Additional Insured on the policy. Once the title moves to the buyer, they need to purchase their own policy.
Contract for Deed
This transaction structure is very similar to that explained above, the buyer agrees to pay the purchase price of the property in monthly installments. The buyer takes possession of the property while the seller retains the legal title to the property until the contract is fulfilled. Typically, the buyer is responsible for paying for insurance. Although, it is still in the seller’s name, with the buyer as an Additional Insured.
Sandwich Lease
This is a three-party deal in which the tenant is leasing a property from an agent or property manager, who is leasing the property from the owner. REInsurePro is able to insure the property owner, making sure they are the named insured. The middleman (agent/PM) can only be listed as an Additional Insured on the Certificate of Liability. They do not have interest in the property, and therefore cannot insure it in their name. If it were to burn down, they would not be out except their income from the tenant’s lease.
In some instances, the middleman may be managing the property as a short-term rental. If this is the case, they should get in touch with an insurance agent who can provide them with a General Liability policy for their business operations. At REInsurePro, our partners at Sandstone Insurance can provide this.
Quitclaim Deed
These are quick real estate transactions where the title changes from one party to another without changing or affecting the mortgage on the property. This is usually used between family members following a marriage or divorce. REInsurePro insures Quitclaim Deeds provided the property is being used as an investment property.
When a new party is added or removed from the title, the named insured should be updated with the appropriate party’s name(s). Investors should always keep insurance policies up to date so that if a loss occurs, everything is correct on their locations, and everyone is properly insured.
We insure creative investment strategies the right way. Contact your Sales Manager if you have any questions about insuring creative investment strategies.
