Rejected by under writers

12 Replies

Hello,

I have a 3-Family house in Albany NY under contract with a 2-car detached garage that cannot be used (roof is collapsing, structural issues). Removal according to the inspector would cost around 10k and repair about 20-25k. The seller has the garage "as is" in the sale. I am trying to get insurance for this property before closing and so far has gotten rejected by the under writers of Amica and Nationwide (company that the property is currently insured under). The under writers are willing to give me 30 days to fix the garage or they will revoke the policy. I have the money to fix the garage but I do not see any return or value in doing so. Any suggestions about how to approach this?

Ideally I would like to get the property insured without any repairs even for a slightly higher premium.

Also, I am curious if I am not able to get insurance for this property will this fall under the mortgage contingency in the contract since the bank requires insurance to issue the mortgage?

I'm not exactly clear what you're proposing. Do you mean you just want to leave the derelict garage and let it fall down eventually? I can't imagine any insurer would go for that, especially on an income property with tenants. It's an accident (and potential liability claim) waiting to happen. I think you should just tear down the garage.

The tenants are not allowed to use the driveway or the garage. There is plenty of street parking.

@Ahmad Hijazi your best bet is to take policy and have someone or yourself ready to remove immediately. The problem is most contracts cannot exclude any structures on premises, so everything must meet guidelines. These damaged buildings are also a liability issue to you and therefore the insurance company. Best Regards, Tom

As to your financing contingency, it partly depends on how it's written. Usually you have so many days, then either: 1) The contingency automatically is removed if you don't invoke it, or 2) the contingency remains in effect until removed, or the contract canceled by the seller after a certain time. "Inability" (you have the ability) to obtain insurance after a certain point in the contract timeline may not necessarily be a get out of jail free card.

Just saying "The tenants are not allowed to use the driveway or the garage" doesn't cut it. You're definitely into attractive nuisance territory here, I'd say. I'm not a lawyer, but here's some info for you: http://en.wikipedia.org/wiki/Attractive_nuisance_doctrine

This can cut two ways though; the current owner is the responsible party right now. Maybe you can get him to credit some or all of the cost of removing the garage once you convince him of the severity of the liability issue that he has...

How much of a discount is the seller giving you for the current condition/ market value of the property? If there is a generous discount, then he might expect you to be responsible for any repairs, serious or otherwise and not be willing to negotiate further on paying for tear down of the garage.

Regardless, why don't you start getting a few contractors over to get you estimates for tearing the structure down. You can use this for your own benefit of having contractors lined up immediately after closing or use to to show the seller and negotiate further.

Your 2 options to move forward with this deal are tear it down or fix it up. You need to figure out how this gets done and negotiate who will pay for it. It might just have to be you, but it also might not be 10k. Could be less...

Besides the insurance requirement, just because the garage would be off limits doesn't mean that kids wont play nearby ignoring your rules and get injured. You might be held liable by a court regardless of what your warning or rules were at the time. You should be thanking the insurance company for nagging you about this issue. You can't get fire insurance on a house that's already on fire. This is no exception for insuring a garage that's about to fall down:)

If you cant make it work, use the financing contingency where bank underwriting rejects loan without an insurable property and get out of the contract.

It's hard to believe that you would be able to get any policy written with a clear and present liability like the garage. That being said, any buyer with a mortgage, not just you, would not be able to purchase this property as having a homeowners policy in place is a contingency for mainstream mortgages. I would use this reasoning to try to get the Seller to remove the garage. The Seller has a ready and willing Buyer in hand - is he/she going to kill the deal over the garage and wait for a cash buyer? Worst case scenario, you take down the garage before settlement.

Thank you all for the prompt feedback. I will get quotes from two contractors for fixing and removing the garage then go back to the seller. If the seller won't budge I think I will have to drop this one and move on. The market value of this property in good condition is around 180k , I got it for 158k.

between garage repairs and make-ready costs and other renovations for rentals, you'll be close to paying full market value. That's a far cry from 70%-75% ARV - repairs people use for evaluating a potential investment purchase. Just something to keep in mind...

@Jeff Bridges , I would worry about that 70-75% figure only if I were flipping the property. It wouldn't have any real impact on my purchase of a buy and hold; there I'd be looking at the cash flow relative to the purchase price/cash invested.

"The tenants are not allowed to use the driveway or the garage. There is plenty of street parking."

Yeah that doesn't mean the tenants WON'T TRY.

Believe me the insurance companies have probably seen claims you haven ever even thought of. I think it's a toss up between health insurance and property insurance companies on who is more brutal with insuring and payouts.......... : )

10,000 is a lot. I can get a whole house demolished here and the land scraped for the price. Unless this garage is right next to or connected to another building then I can see it is more delicate to take down and expensive.

What if an injury occurs or a larger problem is discovered once the garage is taken down?? For these reasons I would get some quotes and tell the seller this is the best you found and that the garage has to be demoed before closing or no deal. This puts the risk on the seller and takes it off of you.

If they want you to handle it the price has to come down much further. If you have to walk leave them your card and be nice and say if circumstances change call me back. Sometimes they need a cancelled contract and a few days to a week to think about " the one that got away".

No legal advice.

Originally posted by @Ahmad Hijazi :
The tenants are not allowed to use the driveway or the garage. There is plenty of street parking.

Most lawsuits are started by someone doing what they are not allowed to do. No one allows someone else to get hurt unless it is complete negligence which is usually not the case.

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