insurance on a contract for deed

[Account Closed]

what are you guys doing for home insurance on a contract for deed? currently, i've been holding the insurance, and my buyers get renter's insurance and pay for my policy through a 3rd party escrow service...currently looking for better suggestions...any insurance companies that will allow a contract for deed buyer to purcahse a policy to cover the house, insuring my bank first, me second, and the buyers 3rd??

[Bill Gulley]

I assume you did not inform the bank about the CFD. What you are doing makes it more expensive for your buyer. There are several ways to take care of this.

1. You have a landlord policy with contents as if it was a furnished unit, not really the best, but can work.

2. Have the buyer insure it. An insurance company should provide coverage based on the basic legal requirement of what is called "insurable interest" hit that one with the insurance agent. You buyer has an insurable interest in the property based on the equitable interest obtained. This is the best way, but you bank will be notified.

3. Another way is for you to insure it and add the buyer as an additional insured. That means you and the buyer are the owners of the policy and again, the bank gets a new policy with a new name.

4. Another way is to add the buyer as a lien holder behind the bank. This needs to be addressed in your CFD with the equity established being consider a valid lien on the property in the event of an insured loss. The bank will likely see this as a second mortgage being placed on the property. In the event of a loss the CFD may need to be filed.

IMO, number 2 is the best way and add yourself as an additional insured/lien holder.

You need to look into what is customary in your area. CFDs have been done for decades and insured. Issues have likely been to court in your area involving insurance claims and the acceptable way to accomplish this has probably been established locally....follow that method! Good luck, Bill