In CA if I owner carry, what happens if the house is destroyed?

2 Replies

This is in California.  I expect to come into some inheritance money in the next couple of years (it's in probate hell right now - if you want to get revenge on your relatives, leave a bunch of money and no will, and 7 heirs to fight over it).

My background is in property management, and initially, I was thinking about buying a cheap rental, paying cash.  But, I'm researching buying a cheap place for cash, then selling it with owner carry, with the thinking that I wouldn't have to deal with tenant problems and maintenance.  

My main question here is, what happens if the place burns down?  This is an issue in CA.  From my research, I can require the buyer to carry insurance, but has anyone here had a situation where you were the seller and you owner-financed and the property was destroyed?  What happens?  Thanks.

Originally posted by @Sue K. :

This is in California.  I expect to come into some inheritance money in the next couple of years (it's in probate hell right now - if you want to get revenge on your relatives, leave a bunch of money and no will, and 7 heirs to fight over it).

My background is in property management, and initially, I was thinking about buying a cheap rental, paying cash.  But, I'm researching buying a cheap place for cash, then selling it with owner carry, with the thinking that I wouldn't have to deal with tenant problems and maintenance.  

My main question here is, what happens if the place burns down?  This is an issue in CA.  From my research, I can require the buyer to carry insurance, but has anyone here had a situation where you were the seller and you owner-financed and the property was destroyed?  What happens?  Thanks.

First, don't spend your money until the check clears. A friend of mine and 4 siblings inherited a farm in North Dakota worth some $200,000 so not a whole lot of money. It took over ten years for everyone to finally agree on what to do.

And to your question, you have the buyer carry insurance and you are named as Mortgagor and you get a copy of the policy. You are notified by the insurance company if insurance lapses. At that point you buy "forced placed insurance" for the buyer and they pay the higher premium. Banks do it all the time. It's nothing special. Just talk to your insurance agent. Also, be sure to close through escrow, not just over the kitchen table.

Originally posted by @Account Closed :
Originally posted by @Sue K.:

This is in California.  I expect to come into some inheritance money in the next couple of years (it's in probate hell right now - if you want to get revenge on your relatives, leave a bunch of money and no will, and 7 heirs to fight over it).

My background is in property management, and initially, I was thinking about buying a cheap rental, paying cash.  But, I'm researching buying a cheap place for cash, then selling it with owner carry, with the thinking that I wouldn't have to deal with tenant problems and maintenance.  

My main question here is, what happens if the place burns down?  This is an issue in CA.  From my research, I can require the buyer to carry insurance, but has anyone here had a situation where you were the seller and you owner-financed and the property was destroyed?  What happens?  Thanks.

First, don't spend your money until the check clears. A friend of mine and 4 siblings inherited a farm in North Dakota worth some $200,000 so not a whole lot of money. It took over ten years for everyone to finally agree on what to do.

And to your question, you have the buyer carry insurance and you are named as Mortgagor and you get a copy of the policy. You are notified by the insurance company if insurance lapses. At that point you buy "forced placed insurance" for the buyer and they pay the higher premium. Banks do it all the time. It's nothing special. Just talk to your insurance agent. Also, be sure to close through escrow, not just over the kitchen table.

Thanks so much for this info about the "forced placed insurance."  I really appreciate it.  I don't know anything about owner-carry from the seller side.  I've purchased a couple of properties with owner-carry contracts, so I understand it from a buyer's side.  I have a lot to learn about the tax implications in selling and carrying the loan, vs. buying and holding as a rental, too.  I did learn that in CA, I can have 3 owner-carry properties in a 12 month period, with max interest at 10% and max prepayment penalty of first 5 years only and max amount equal to 6 months of monthly payment amount.  So far, it looks like it might work out to a decent way to invest my inheritance, but I still have a lot to learn.

And yes, probate is such a pain. The good news is my mother was under a conservatorship by the county and they already sold her house and belongings. All that is left to liquidate is her IRA, so it shouldn't be a huge deal. Everyone is basically arguing over who will be the administrator right now. Worst case should be 2 years total to distribution, but you're right - who knows? I'm just researching investment options in the meantime.