Does your due diligence include confirming Insurance coverage?

6 Replies

In purchasing a first position note, do most people verify insurance coverage prior to purchasing the note or do you wait until after the note is purchased and deal with it then? 

What is the best way to verify coverage?  Even if you have the name of the insurance carrier, most Insurance companies require prior authorization before they will give you information.   

Not really. You can ask the seller of the note to provide you a copy of the insurance docs, but basically you can wait until you take assignment then reach out to the borrower for confirmation of insurance. There is a formal letter process required by CFPB, your servicer can guide you on this. Its not a good idea to contact the insurer until after you take ownership and record your assignment. 


Once you purchase the note, put forced placed coverage on it. Many servicers offer it, if not use Affinity (previously NREIG). Don't forget to add these costs in your expenses when doing due diligence. Also important to note is that the homeowner has to be notified and they can get their own coverage (which is cheaper than forced placed).

I'm not an expert on insurance so if I missed something someone else can chime in.

@Sandy Uhlmann

The lender who created the performing note would have already collected the evidence of insurance.  As the note holder, you, or your servicing center, will be listed as the mortgagee, which means you can call the insurance at any time and make sure coverage is in effect.  The servicing company servicing the note would get notified, if they are listed on the mortgagee clause, and would notify you of a lapse of coverage before you spend time or money putting more expensive forced placed coverage on the property.

I have the insurance companies name and phone number but the information from the seller states the insurance is in effect until 5/16.  I Called the insurance company in the hope that they would give me a yes or no answer.  They would not. They needed an authorization letter from the borrower.  I certainly understand if this is because I am not the owner of the note yet.  (I knew it was a long shot but thought I would try)  I am hoping to send them an assignment of mortgage as proof so I can be added as additionally insured.  I hope that is all it takes.

@Sandy Uhlmann we primarily purchase 2nd position NPLs, but we have been able to obtain verification of insurance (and included as "additional insured") with either homeowner authorization or submitting assignment of mortgage to insurance company.  Different companies seem to have different requirements.

@Herb Dorn , likewise, I have been added as "additionally insured" because I found documents naming the insurance company and I faxed them my assignment of mortgage.  @Darren Eady  you would think that the previous owner of the first would have insurance info but I have purchased two notes from FCI where the owners were not sure if they had insurance info or not.  As it turned out with the first note, I ended up placing forced placed insurance on the home after several letters requesting proof of insurance were sent to the borrower with no insurance info provided.

The reason I asked this is that it would just be my rotten luck that the house would burn down somewhere between the time that I discover that the borrower was uninsured and the time that I was initiating forced placed insurance.

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