Boarding and Insurance

9 Replies

We just boarded our first note. My first question to the servicer was if there was insurance on the property. She said she doesn’t know. I asked “isn’t that one of the first things you look at”? She said the investor has to request it. I said that makes no sense that should be the first thing people make sure of, that our asset is insured. She stated that some investors don’t care as they don’t want to have to pay forced insurance. I found that absurd. So question is, is that normal? That is, do you have to request proof that the property is insured or should the servicer automatically do it? Thank you.

Not really an expert on this as I don't use servicers as our notes don't require their services.. but yes I believe insurance is for SURE your responsibly and you don't want to delegate that to someone else.

its not their money lost if the house burns down its yours.. so you have to be responsible for you investment.. you should inspect the dec page and make sure your on their as additional insured with the correct address etc etc... because borrowers are famous for not paying insurance and the next thing you know your un insured.. force place is expensive no doubt..

Bottom line is I had it happen to me once and never again.. IE house burned down borrower let insurance lapse somehow we did not get notified.. so I am a insurance Nazi about all of this these days..

other thing to keep in mind as well.. is if for some reason the house goes vacant.. if its vacant for more than  60 to 90 days many policies will not cover you after that you have to call and get a special rider for vacant home..

these are all little live and learn things that when they bit you and you lose 50k you won't let it happen again.

I guess the point of my response is trust but verify.. if it is the servicers job fine.. but make them verify and then write down your dates that the policies expire and make sure they have been renewed.

Same with property tax's if there are not impounds.. buyers in seller carry again are famous for not paying taxs.

@Robert Beryl , it is not the responsibility of the servicer to deploy insurance, it is the lender's responsibility. The servicer is responsible for servicing: collecting payments, sending statements, keeping in compliance, etc. Your responsibility as the lender of record is to take measures to keep your investment covered and your risk as low as possible. We originate a force placed policy as soon as we buy the debt then after the required CFPB letters are sent to the borrower, if they respond positively the FP policy is cancelled. If not, then it is kept in force. 

Bob

@Robert Beryl , I will add one more thing... Since you are buying NPNs. If they aren't paying their mortgage they are more than likely NOT paying insurance and taxes... So just always assume you need to add the FPI and you can quickly cancel if you are pleasantly surprised that they do have it.

Thanks for the help everyone. Sorry you had to learn the hard way @Jay Hinrichs !

@Bob Malecki and Wayne Snell if I may follow up, this is actually a performing Note (though in Bankruptcy and there is some other things I was not happy to find out about) but both of you have many properties or done many deals. Just to be clear you guys put forced insurance right on them even if they were performing? Also (and sorry for so many questions) is there a way to find out in the collateral file during due diligence if the house is currently insured?

I know longer have a mortgage where I live but I have flood insurance. When I did have a mortgage I have gotten warning letters informing me that I have 30 days to show proof of insurance or forced place insurance would be put in place.

Thanks again I appreciate it!

@Robert Beryl I have FPI put on every deal and make the borrower confident hey have insurance. The only time I may not is if it is performing and they are taking escrow payments as the servicer and the escrow is positive cash

Otherwise I order it and then have the borrower confirm they have it - if they do I cancel it.

Thanks @Chris Seveney and that’s actually what I asked her about escrow etc but she said it has to be “uploaded in the system first”

Just found the whole thing weird as I don’t want to risk one minute with that the place is uninsured.

Makes sense why the former mortgage company always gave me 30 days as I had escrow (and I always had the insurance in place too so just faxed it over).

Thanks again!

@Bob Malecki   just as an aside with your force placed insurance do you have vacant home Rider.

I have had clients of mine and its been an issue myself with houses that I foreclosed on that were more than 90 days vacant..  you don't realize your uninsured until you make a claim.. only to have the adjuster ask you when the last time anyone lived in the home.. :)  your not sure what thy they are asking so you just say well they moved 4 months ago.. then they respond well then your insurance lapsed 30 days ago sorry your not insured you needed a vacant home Rider.

WE have a lot of property and as such I have a master policy like a Lloyds of London were I can add and delete in a given day.. and only pay insurance for the days its insured.. so that makes our life pretty good.. And as long as I have an insurable interest I can insure it... no need for force place and that uber expesnive insurances.

Hi Robert, yes sometimes the collateral files may have an insurance declaration policy in the file, but the majority of the time those are not exposed or included. While performing due diligence on a performing note if I see that there is an impound account already created with the current lender than I would ask if insurance is being impounded along with the taxes. This way you can determine whether the borrower has a policy in place. 

Also note that a lender's title policy should be included in the collateral file and that is different than the homeowner policy of course.

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