Buying As-Is Short Sale: Needs Roof, can't find insurance

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Buying As-Is Short Sale: Needs Roof, can't find insurance

Victor Morgan
Investor · Greenville, SC · Member since 2014 · 7 posts · 0 votes

I've been reading these forums for several months and would like to thank the members for sharing their expertise. I have learned a great deal about real-estate investing and operating a rental.

The home I am currently purchasing as my main residence is an as-is short-sale at below market value including repairs. Although there are many minor repair items, the house either needs significant roof patching or replacement. I have factored the repair costs into the price offer and am planning on paying out of pocket immediately after closing, but have hit an unforeseen snag.

The mortgage company requires insurance, but no major insurance company that I have called will insure a house that needs a new roof, even if it replaced ASAP after closing with funds from the new owner.

I'm sure that I'm not the first person that this has happened to, what good options do I have?

Are there any "temporary" insurance companies that would bridge the gap between closing and the completed repairs (~30-60 days)?

Could the current owner file insurance and take funds from the escrow account to pay the deductible?

Are there insurance companies out there who do this that I just haven't found yet?

or am I just being to honest with the insurance companies because when they send an inspector I will have already repaired/replaced the roof?

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Glenn McCrorey
Investor · Cedar Rapids, IA · Member since 2013 · 494 posts · 407 votes
12y

Victor, can you get a roofing contractor to put in writing the roof has a few years left on it? You could plead ignorance to the insurance company because you aren't a roofing guy and it didn't look perfect but then you so you got a professional opinion and learned you were wrong about how bad the roof is (assuming you can do so truthfully). I like Jeremy's comment about an "exclusion" if the above doesn't work. I bought a house last year with a bad roof. The bank held the repair funds in escrow until the job was completed then paid the contractor directly. I don't remember the insurance company asking about the roof but I use the same agent for all these deals so they don't ask as many questions.

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  • Jeremy Tillotson
    Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
    12y

    See if u can get insurance with a roof exclusion. if not check out affinity insurance for investors, its notvthe best insurance but we use it for our flips.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    I'm surprised you found a lender to lend on the house that needs a new roof, with or without insurance in place. I haven't run across this because typically you can't get traditional financing for a house needing a roof. If the damage was not caused by some "sudden event" insurance wouldn't cover it anyway, as insurance doesn't pay for something just wearing out. An FHA 203k loan might be an option, but you probably don't have time now, with the short sale approval. Has the house passed the appraisal/inspections for your lender yet?

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  • Victor Morgan
    OP
    Investor · Greenville, SC · Member since 2014 · 7 posts · 0 votes
    12y

    The house passed the appraisal and "no signs of deferred maintenance were noticed". Perhaps my definition of "needs roof repair/a new roof" and the lenders definition are different. In retrospect, I was likely too forthcoming with the insurance companies.

    The house is habitable, there is no interior water damage, but many shingles have been blown off and the inspector and roofing contractors recommended a new roof or varying degrees of repair.

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  • Victor Morgan
    OP
    Investor · Greenville, SC · Member since 2014 · 7 posts · 0 votes
    12y

    To be clear, I am not expecting the insurance company to spend any money on the roof. The roof is a "pre-existing condition" and was built into the purchase price. My plan was to paying for the roofing repair out of pocket immediately after closing with my own funds.

    According to the insurance companies I have talked to, they will even deny coverage to roofs within 3-4 years of their expected end-of-life, or if a certain number of shingles are blown off of the house.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    Yes, typically here they have an inspection, and need a minimum of a 2 year life expectancy-as per the inspector. I'd just call for quotes, schedule any inspections they want and see what happens. My reference to insurance not paying out, was in reference to your statement about the current owners insurance co.

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  • Glenn McCrorey
    Investor · Cedar Rapids, IA · Member since 2013 · 494 posts · 407 votes
    12y

    Victor, can you get a roofing contractor to put in writing the roof has a few years left on it? You could plead ignorance to the insurance company because you aren't a roofing guy and it didn't look perfect but then you so you got a professional opinion and learned you were wrong about how bad the roof is (assuming you can do so truthfully). I like Jeremy's comment about an "exclusion" if the above doesn't work. I bought a house last year with a bad roof. The bank held the repair funds in escrow until the job was completed then paid the contractor directly. I don't remember the insurance company asking about the roof but I use the same agent for all these deals so they don't ask as many questions.

    1Reply
  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    12y

    @Victor Morgan

    Did the insurance company notice that the roof needed to be fixed? Personally I have never had any of my insurance companies ask me about the roof. I would never recommend lieing as that is FRAUD!!!! Fraud is illegal!!!!

    I also do not feel to volunteer information if it is not asked! How are the insurance companies finding out about the roof?

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  • Eric Belgau
    Insurance Agent · Olympia, WA · Member since 2014 · 168 posts · 88 votes
    12y

    @Victor Morgan if the home is/has been vacant, your mortgage company should be okay with you getting a builder's risk policy for the vacancy/repair period, to be replaced with a permanent policy after that.

    If it is not or won't be vacant, then you should still be able to get it covered. The most brand-prevalent insurance companies tend to be risk-shy, but if you speak with a broker who has access to numerous markets you should be able to find a policy.

    When you speak with insurance people, describe the situation in terms of what you're doing to remedy it. From my perspective, there's a big difference between a guy who says "the roof has holes in it" and the guy who says "There are some issues with the roof, so I've been getting bids to repair or replace it as soon as I close."

    The first guy has a problem; the second guy has a solution.

    It's also good to take your own pictures and show them to the broker. The companies I work with do inspections - which isn't fraud; they have to know the risk they're taking - and you don't want this issue to repeat itself right before you close.

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y

    I've bought some absolute junkers and I can always get insurance before closing. Where I am the insurance inspection doesn't happen until after closing. Then I get a letter telling me what's wrong and how many days (months) I have to remedy the situation. By then I've either fixed the issues or sold it.

    If the only issue is insurance and not the lender, you should be able to call a different agent and get a quote asap in order to close.

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  • Patrick L.
    Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
    12y

    Talk to a different broker and see if you can find a policy that works. My properties are all covered under my commercial policy and inspections are done after the property is added. If a deficiency is noted they will give me X amount of time (generally 30 days) to rectify it or they will cancel coverage on that property. I've bought plenty of properties with active roof leaks and had them insured the day I bought them and I generally get the roof replaced before they even get around to having the inspector come out.

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  • Stephen S.
    Wholesaler · Holiday, FL · Member since 2013 · 571 posts · 221 votes
    12y

    Before closing why don't you just call (on-line) for a homeowners policy on the house, Geico, Progressive, or whatever, pay whatever they want, and get the policy. The company will then come out in a few weeks, perform a site inspection, and give you a list of repairs required to satisfy their underwriting requirements. By that time the roof will probably be done.

    -----------------

    I've been reading these forums for several months and would like to thank the members for sharing their expertise. I have learned a great deal about real-estate investing and operating a rental.



    The home I am currently purchasing as my main residence is an as-is short-sale at below market value including repairs. Although there are many minor repair items, the house either needs significant roof patching or replacement. I have factored the repair costs into the price offer and am planning on paying out of pocket immediately after closing, but have hit an unforeseen snag.



    The mortgage company requires insurance, but no major insurance company that I have called will insure a house that needs a new roof, even if it replaced ASAP after closing with funds from the new owner.



    I'm sure that I'm not the first person that this has happened to, what good options do I have?



    Are there any "temporary" insurance companies that would bridge the gap between closing and the completed repairs (~30-60 days)?



    Could the current owner file insurance and take funds from the escrow account to pay the deductible?



    Are there insurance companies out there who do this that I just haven't found yet?



    or am I just being to honest with the insurance companies because when they send an inspector I will have already repaired/replaced the roof?


    0Reply
  • Eric Belgau
    Insurance Agent · Olympia, WA · Member since 2014 · 168 posts · 88 votes
    12y

    The timing of inspections can be a bit unpredictable, depending on the company, the risk profile, the area, even the agent who's writing the coverage. And there are a number of differences between adding a property to the schedule on an existing commercial policy and covering a primary residence at purchase.

    After the inspection is done you will have some time to remedy the situation, but you want more flexibility than a lot of the captive underwriters will be willing to give. Under normal circumstances, if they do an inspection before closing and give you a month or so to remedy it, that's no problem. In a short-sale with no finite time frame, you might not have access to the property in time. Some carriers will be flexible and understanding, others will not.

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  • Donald Stevens
    Detroit, MI · Member since 2009 · 114 posts · 40 votes
    12y

    Some may not agree with me but you can never be too honest with an insurance company. If you want them to pay for a home worth $100,000 in the event of a claim and you only want to pay them $500 to do that, then you could be faced with a moral issue not to mention possibly insurance fraud. There are policies that offer builders risk coverage while you live in the home. Buying a policy online because you believe it is going to take them a long time to inspect the home then they give you 30 days may or may not work. Your house could suffer major damage and they can give you back the money you paid. Most policies also exclude coverage if major work/renovations are being done. You can try to "pretend like you didn't know", but insurance companies insure millions of homes and yours isn't the first. And in this real estate market, your situation is all to common.

    All that being said, a company "may" come out and give you 30 days to fix the problem but that is not an automatic. Just check with some independent agents and I believe you can find a solution. There are agents on this website who clearly focus on this line of business and could help you also. Insurance is about reducing risk, not taking risk. Find the right policy and you will be fine. They do exist.

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