Need Insurance Advice! Closing with non-paying tenant in place...

[Chris Kennedy]

Hi fellow investors,

I'm in a unique situation I have not had to deal with before and would like to get some opinions on the best way forward. 

Here's the deal:

I have a single family home under contract for $25K, with an estimated ARV of $120-130K. Estimated $35-40K in rehab required. I plan on closing on the property to rehab and resell.

Here's the issue: 

The owner lives out of state and her son lives in the subject property. He is not paying rent, and has fallen out with the family. They are not speaking to each other and there is a lot of animosity. He has threatened to burn the house down if she sells it. This is why we got it for a good price - the owner just wants to be done with the situation. There is no lease, and we cannot gain access to the property.

I am fine purchasing the house as-is without seeing the interior as we are planning full rehab anyway. My concern is that the tenant follows through on his threats of burning down the house and then I have lost $25K overnight. I have contacted numerous insurance agents and nobody can give me a policy to cover this. I cannot get a traditional homeowners policy without a 4 point, and I cannot get access to the house to get the 4 point inspection done. The GL policies I have been quoted for only cover the house if it's vacant at time of closing.

The current owner is selling it to me because she does not want to handle evicting her son, which I understand, so giving me the house vacant is not an option. 

Does anybody know what sort of insurance policy I can get, if any? Or do I have to take the risk of closing without insurance? I know we could ask seller to leave some funds in escrow until the son vacates, but I don't know if she'll go for it. 

Thoughts? Advice? Thanks in advance! 

[Steve Babiak]

Tell the seller you will only do the deal if all funds stay in escrow. If son carries out the threat, you get back the money in escrow, former owner can have the land and the shell. You will need an attorney to set that up of course.