Mortgage Company Requiring Insurance in Personal Name
Santee, CA · Member since 2015 · 17 posts · 1 vote
We own all our properties in LLCs with mortgages in our personal names as we switched them to the LLC after purchase. We never had problems with mortgage companies accepting the insurance in our LLC names until this year. 2 of them sent letters saying we have to have the insurance in our personal names which opens us up to liability exposure. We could have us as primary on the policy with the LLC as additionally insured but I don't like the exposure that gives us. Is anyone else having this happen and are there any solutions or workarounds other than refinancing at higher interest rates to a commercial loan or paying the property off?
@Will Chitwood The way that our company does this is to setup the insurance policies in the name of the client personally then add LLC's and Land Trusts as additional insured. The way it has been explained to me and the way that I understand it is that insurance policies are not public records and you can't link a real estate investors properties together by multiple insurance policies in the same way that you could go to the county recorders offices and look up property ownership. The best practice is to make sure that you are carrying insurance coverage that will cover you off for what would be your worst case scenario.
Don't cheap out on property coverage as that is what makes you whole in case of the property getting wrecked and don't cheap out on liability coverage as that is what is going to cover you in case you get sued by a tenant or guest in the case of a vacation rental. For Liability the best way if you have multiple properties is for standardized liability limits of 250K-350K depending on which umbrella coverage you go with. Then adding an umbrella policy to include your properties and bring your liability coverage to much higher limits like $1-20 Million.
(Johnny Depp/Amber Heard lawsuit settlement and legal team was paid for by Amber's homeowners and umbrella insurance)
Having your ownership structure properly set up isolates each property from each other making it so that if you get sued over 1 property the worst that can happen is losing the 1 property. Check out this BP blog Royal Legal Solutions and Scott Smith and his team give out tons of free education on best practices. https://www.biggerpockets.com/blog/contributors/scottsmith-2
If you have insurance and you weren't negligent to the point where your claim gets denied then your insurance should pay out to cover the loss without having to fight legal court battles with lawyers coming after all your assets.
If your worry is about having your name show up in a liability situation you will be brought into it anyway even if ownership is held in a corporation. (Not giving legal advice I'm an insurance agent not an attorney) If you are sued and they allege negligence on your part they can pierce the LLC protection anyway is my understanding but you have to ask your attorney about that part.
My bigger worry is in a claim situation with you having a policy in your personal name but the legal ownership in an LLC is the potential for the claim to be denied (at first) for not having insurable interest - you could fight thru to show you are the owner of the LLC thus the property owner and have an "insurable interest" entitling you to coverage BUT... do you really want to jump thru those hoops if the house burns down?
I'd talk at length with your insurance provider and give them ALL the info and get in writing what they are willing to do and how you would by covered in a hypothetical situation of a major loss, home owned by LLC, insurance policy in your personal name?
Express the same concern to the lender who is willing to loan money to an individual person with the collateral being owned by an LLC? I don't think they are thinking it through or don't understand the potential insurance issues they are asking you to expose your self to.
We own all our properties in LLCs with mortgages in our personal names as we switched them to the LLC after purchase. We never had problems with mortgage companies accepting the insurance in our LLC names until this year. 2 of them sent letters saying we have to have the insurance in our personal names which opens us up to liability exposure. We could have us as primary on the policy with the LLC as additionally insured but I don't like the exposure that gives us. Is anyone else having this happen and are there any solutions or workarounds other than refinancing at higher interest rates to a commercial loan or paying the property off?
@Will Chitwood The way that our company does this is to setup the insurance policies in the name of the client personally then add LLC's and Land Trusts as additional insured. The way it has been explained to me and the way that I understand it is that insurance policies are not public records and you can't link a real estate investors properties together by multiple insurance policies in the same way that you could go to the county recorders offices and look up property ownership. The best practice is to make sure that you are carrying insurance coverage that will cover you off for what would be your worst case scenario.
Don't cheap out on property coverage as that is what makes you whole in case of the property getting wrecked and don't cheap out on liability coverage as that is what is going to cover you in case you get sued by a tenant or guest in the case of a vacation rental. For Liability the best way if you have multiple properties is for standardized liability limits of 250K-350K depending on which umbrella coverage you go with. Then adding an umbrella policy to include your properties and bring your liability coverage to much higher limits like $1-20 Million.
(Johnny Depp/Amber Heard lawsuit settlement and legal team was paid for by Amber's homeowners and umbrella insurance)
Having your ownership structure properly set up isolates each property from each other making it so that if you get sued over 1 property the worst that can happen is losing the 1 property. Check out this BP blog Royal Legal Solutions and Scott Smith and his team give out tons of free education on best practices. https://www.biggerpockets.com/blog/contributors/scottsmith-2
If you have insurance and you weren't negligent to the point where your claim gets denied then your insurance should pay out to cover the loss without having to fight legal court battles with lawyers coming after all your assets.