It’s your money and effort when you are funding and/or investing in a re-hab project. It’s your job to know and understand your insurance risk and liability exposure When borrowing from an equity lender as it’s imperative to protect your source of funding. Both the borrower and the lender must identify the risks involved when choosing the appropriate insurance to place when a property is vacant and being remodeled.
Insurance is boring stuff designed to cure the worst insomniac. As a consequence the lack of attention paid to obtaining appropriate coverage may result in CLAIM DENIALS. A substantial loss could wipe out your investment and in turn if you are a flipper, your source of funding.
When lenders accept and contractors provide a homeowners policy or a landlords policy to cover a vacant policy remodel you are giving permission to your insurance provider to deny claims.
For Example in almost all policy language there is a clause:
This policy will be void for Concealment of Fraud.
If any insured has BEFORE or AFTER a loss intentionally concealed or misrepresented any MATERIAL FACT OR CIRCUMSTANCE relating to this insurance……..
This means if you do not disclose at time of insurance placement that the residence is vacant and you anticipate doing ANY type remodeling, the insurance carrier can utilize this language to deny your claim.
Another Example is that after a certain amount of time, usually 30 or 60 days, Vandalism, Malicious Mischief, theft and in some polices FIRE is excluded. Consider the vandal that lights a fire and the property burns down. In this scenario the insurance carrier may have just been given a defensible position to DENY YOUR CLAIM.
A vacancy remodel policy can be written for a term as little as three months with refund if the policy is terminated prior to expiration. The cost may be more than a landlord or homeowners policy because of what it will pay, not because of what it will deny.
Insurance language will put you to sleep until you have a claim, know your coverage, know your risk and you will avoid a rude awakening!
Ross Diversified Insurance Services is a 25 year old national insurance agency that works with investors, contractors, mortgage originators and servicers of any size insuring residential and commercial properties including rentals and distressed assets/foreclosures. Ed Babtkis, President of Ross Diversified, can be reached at 800-210-7677 or on his cell 714-697-8733.