Got the Deed Sub2, Now what?

Buying & Selling Real Estate
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Got the Deed Sub2, Now what?

Curtis H.
Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes

Hello all, 

I already have another post about this deal, so I won't get into the specifics. Basically I have the deed and it's closed. Sellers will be out in 3 days and I just want to make sure I get my checklist right of things I need to do now. I am going to be living in the home on this one :-)

I had them sign a POA so we should be square there. I know I need to change the insurance, but I need some advice there. I read somewhere that some people leave the previous owner's names on there as well as adding their own, and get insurance as if it were a landlord policy?

I know the previous owners can still call the bank, but what can they do? I have arrangements worked out with the bank that I don't want them screwing with, not that they would because they can't pay anything, but things change and they may want their house back if they come into a bunch of money somehow. I know that if I feel things are getting weird I can just Refi and not have the loan in their name at all, but we are not there yet. But I'm watching them closely. 

Right now I'm so focused on the 3 weeks I have to get the electrical, plumbing, etc done that I don't want to miss any housekeeping/logistical items on the checklist. 

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Rocky V.
Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
12y

@Curtis H. 

I always ask the homeowner for a declaration page.  It will not be on mortgage statement.  In my experience and with several sub2 deals under my belt the mortgage company does not care where the check comes from as long as they receive it.  Make sure to reference loan number on check.

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  • Rocky V.
    Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
    12y

    You will need to cancel their ins policy and add your own with them being listed as an additional insured (you may also consider just adding your name to existing policy).  I always change to my insurance company due to umbrella  policy.  If you plan on occupying residence I would not recommend getting a landlord policy.  Make sure to change address where statements/mail gets sent so if there is an escrow refund it will go to your address.   CONGRATS!  

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  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    @Rocky V.

    Thanks I will work on getting a new insurance policy. How do i even find out what insurance they are using? Is it on the mortgage statement? I guess I could just ask but I would rather not have to ask the bank anything, hoping it will all kind of slip under the radar. 

    Also, when paying the mortgage every month, should I not be doing it under my name? Or just send the check and reference the loan number?

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  • Rocky V.
    Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
    12y

    @Curtis H. 

    I always ask the homeowner for a declaration page.  It will not be on mortgage statement.  In my experience and with several sub2 deals under my belt the mortgage company does not care where the check comes from as long as they receive it.  Make sure to reference loan number on check.

    2Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    12y

    I have done the same on my sub2 deals as above, with regards to the "additional insured" aspect. My goal was to be in and out in three months, which was the timeline for foreclosure in the state in which we were working. As long as I had a POA I could talk with the lender, on the occasion that happened.

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    These people are so unorganized, I'm pretty sure they won't have a declaration on them. Especially not while packing probably. I'll see what I can do in that regard. Thanks for the advice!

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  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    @Rocky V.  and @Kerry Baird 

    Question...

    What type of insurance policy do you guys normally get when doing renovations? My issue is if I try to get a new policy now, they will come out and inspect the property and see the electrical needs updating, plumbing, etc. So they may not even insure in on a normal policy until these things are done. I don't want to get a builders policy for two weeks worth of work tops. Doesn't make sense. 

    Thoughts?

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  • Rocky V.
    Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
    12y

    @Curtis H. 

    I have always kept my sub2 deals as rentals.  In your situation I would consider keeping current policy in place and seeing if you can add yourself as an additional insured.

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  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    @Rocky V.

    My only natural hesitation is if there is a claim of some sort, that they may contact the previous owner for any payout. Or am I looking at this wrong?

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  • Kent Verge
    Investor · Bentonville, AR · Member since 2014 · 114 posts · 40 votes
    12y

    I had an insurance claim on a house I bought Sub2 that I already had on a Lease/Option. It was a bit of a pain since his name was listed on the payment (me *and* him), but since I had a POA, the bank didn't care. A POA is the key. The insurance agent, who was also the agent on my own home insurance, always acted like something was shady about our "arrangement."

    When I bought it, I added my name to the existing insurance and changed the billing address and contact name/number. I also changed the billing address and contact number on the loan. From that point forward, as far as I know, neither company ever tried to contact the previous owner.

    On a side note, for years later I would get letters from collection agents addressed to the original owner. I returned them to the sender with forwarding address unknown (I truly don't know where he moved).

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  • Marshall Downs
    Investor · Benton Harbor, MI · Member since 2013 · 257 posts · 140 votes
    12y

    @Curtis H. 

    Try www.nreinsurance.com. No affiliations here, but I use them and they are great, fast and reasonable. Everything done online.

    1Reply
  • Rocky V.
    Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
    12y

    Agree with @Kent Verge . Make sure to update address so you get any mail sent to original note holder. I have also received checks payable to note holder (usually escrow refunds) and with POA I have never had an issue depositing them directly into my account.

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  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    @Kent Verge 

    Yes I have a POA that was notarized at closing, so I am well covered there. So with that in mind, do you think I will have any issue adding my name to the policy and the bank not raising an eyebrow and calling the loan? From what I hear they could care less usually if it's getting paid. That would be MUCH easier to do, I just want to make sure it wouldn't be smarter to just distance myself from the previous owners and start fresh.

    @Marshall Downs

    I went to the site and realized I am using them for my rental properties in Austin already! They are pretty easy to deal with. I already asked them about a OO property in Socal.

    I have electrical, plumbing, HVAC, pest control, chimney, etc coming in to do work, and I verified they are all licensed, bonded, and insured. I still don't like NOT having any policy in my name and people are scheduled to work on the home next week.

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  • Kent Verge
    Investor · Bentonville, AR · Member since 2014 · 114 posts · 40 votes
    12y

    @Curtis H., I assume that the previous owner was behind on his mortgage or you wouldn't be getting it Sub2. If that's the case, they will be thrilled to see the catch-up payments along with the POA. As long as you pay on time, you won't hear from them.

    I don't know that getting a new policy would be any cleaner. The mortgage company will want proof of insurance, and having your name on the policy might raise eyebrows in the wrong places. Getting my name added to the policy (and changing the contact info) was simple with the POA.

    As I said, the insurance agent acted like he thought something fishy was going on, but they paid the claim nonetheless (tornado damage to the siding). 

    1Reply
  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    The bank still can call the note due unless you got permission from the bank in writing that the seller is doing a subject2 and when you change insurance, the insurance company will send an update to the lender, and the original borrower will stay on the loan until it is paid.


    Joe Gore

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    12y

    The company that @Marshall Downs suggested has @Tim Norris here on BP; they understand RE investing ad so they are usually easy to work with in getting coverage for investment property.  Get the builders risk coverage with them  - they will give it to you for just one month if that is all you need it for.  And that's another way in which they understand the RE investor - you can get a policy that goes month to month even for builders risk and vacancy coverage.

    And Tim even has a paper he wrote on insurance and subject to, so you can ask him about that ...

    2Reply
  • Darrell Shepherd
    Rehabber · Smyrna, GA · Member since 2013 · 864 posts · 510 votes
    12y

    I haven't done a sub2 in a long time, but I would usually leave the insurance in their name and add myself as additional insured.  If you change the policy out of the previous owners name, the bank will almost surely force place insurance on the loan.

    You're gonna have to ask the sellers about the insurance.  Its probably escrowed, but its possible that it got cancelled and the bank is paying for some.  Theirs is very expensive and doesn't cover much.  If you are getting your own, you just need to have you and them on the policy, but make sure all the lender mail and insurance mail comes to you.  Preferably to a PO Box, if he changes his mail and the stuff is still coming to the house it may accidentally get forwarded to him.

    I've only filed one claim on a sub2 in someone else's name, but the check came to me in me and the seller's name and I endorsed it as attorney in fact and deposited in my business account, no problem.

    You own the house if you have the deed.  Not much they can do to unwind the sale if you did it right, but you need to have an exit in mind if they call the loan due.  Pretty rare, but it is a possibility you need to plan for.  

    0Reply
  • Tim Norris
    Investor · Kansas City, MO · Member since 2008 · 153 posts · 81 votes
    12y

    Thanks Steve.  The article you mentioned is on our site, but I also think it is referenced here on BP.  A search should find it.  

    1Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    @Steve Babiak

    Well hell I have them and didn't know they were that good! I should hear back tomorrow on the builder's risk policy for one month. That sounds like a plan.  

    It seems like the general consensus is to leave the current plan in place (unless it sucks) and add my name and there shouldn't be any issues since I have POA. It may also be a lot easier this way because any new policy I get is going to want to have everything already updated and up to code, which is an issue since those renovations haven't happened yet. Does the insurance company ask or care about why I'm adding myself on the insurance? Is there a canned response you give them? One thing I am learning through this process, is sometimes companies will ask questions you don't have to answer, and giving info freely can get you in trouble. Who are you? What's your relation to the owner? Are you now living in the home? Etc.

    I don't know what I don't know since this is my first Sub2.

    1Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    @Tim Norris

    On your post about Sub2 and insurance, it seemed to imply that I would not be living in the unit, but merely be a "landlord". Naturally that's the way it normally works, but in this case I am living in the property, so how does that change things? I just get a homeowner's policy?

    Also, how necessary is it to get builder's insurance on 2 weeks worth of work if all contractors are licensed and bonded with worker's comp for their employees? I don't mind getting the builder's risk for a month, I'm simply asking if it's overkill or not. 

    0Reply
  • Kent Verge
    Investor · Bentonville, AR · Member since 2014 · 114 posts · 40 votes
    12y
    Originally posted by @Curtis H.:

    Does the insurance company ask or care about why I'm adding myself on the insurance? Is there a canned response you give them? One thing I am learning through this process, is sometimes companies will ask questions you don't have to answer, and giving info freely can get you in trouble. Who are you? What's your relation to the owner? Are you now living in the home? Etc. 

    "I'm taking over managing the affairs of this property on <owner's> behalf."

    No more details needed...

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    @Kent Verge

    THANKS!

    As simple as a suggestion that is, it's very valuable to me. When I was working on a short sale and got lots of advice about talking to the bank (since I had never done that before), the one thing I didn't ask is "what to say when they ask these basic questions". Well they asked me who I was, and I said "just a friend trying to help them out". Wrong answer. Arms length transaction, and I almost couldn't write an offer on the property. Eventually I did write an offer but I was thinking "DAMN I wish I would have known not to say that!" If the bank wasn't cooperative, that could have killed the deal. 

    So knowing what to say when talking to these companies is not critical, but it is important.

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  • Tim Norris
    Investor · Kansas City, MO · Member since 2008 · 153 posts · 81 votes
    12y

    Hey @Curtis H. ,

    I agree, if you're living there, a homeowners policy is what you need.  Most, if not all, of the other suggestions should still apply.  If only two weeks, I think you're  fine.  May want to confirm with the insurer you choose to be sure, though.   Sounds like it is working out for you!

    Best regards,     

    Tim

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    @Tim Norris

    Ok so homeowner's policy is the way to go. If I don't leave the current plan in place, I'm using you guys! Assuming you cover Southern California?

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  • Tim Norris
    Investor · Kansas City, MO · Member since 2008 · 153 posts · 81 votes
    12y

    Sounds good.  Yes, we handle all 50 states, too.  Have a great night!

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    12y

    Just an update here. I spoke with Tim Norris' company and emailed Tim today and these people are more awesome than I knew they were and I use them already!

    Very informative, helpful, and kept reiterating over and over, that if another insurance company won't give me a policy call them and they will help me not be in a bad situation with no insurance. It is so important to be "First name insured" on the policy, and if the company doesn't want to do that because the previous owner is on the loan, walk. 

    I agree. 

    Nreinsurance doesn't offer owner occupant policies since they deal with investors (naturally), but they even offer a policy for under $15 per month for liability protection while I renovate. Doesn't include the workers (as they should have their OWN worker's comp) but includes others getting injured, etc. That's a no brainer! Since my renovation is under a month, there is no need for "Builder's Risk" coverage really, and I'm not doing any heavy renovations. 

    At the end of the day, I will roll with the liability insurance for $10-$15 this month, and then when renovations are complete will get regular Homeowner's Insurance through the same people I get my car insurance from to get a nice discount. Again, this is only because I will be LIVING IN THE HOME. If I were planning to sell or rent it, I would use nreinsurance for my policy.  

    Thanks for all the advice everyone!

    And if I'm missing something, let me know. 

    @Tim Norris , do I have to CANCEL the other policy in place now before using your liability plan? That may send a red flag to the bank, but I assume this will happen regardless eventually when I get the new plan. 

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