How do I deal with insurance on a creative deal?

[Peyton From]

Hi all,

Im looking for any insight on insurance in a sub to / seller finance deal.

1. For sub to: Since I would be taking over title to the property, but the mortgage is still in the sellers name, how does the insurance company view this? 

2. For seller finance: I wouldn't have a traditional mortgage, so would the insurance company treat this differently?

Thanks,

Peyton

[David M.]

@Peyton From

1.  I don't know either, but I think its screwy.  A fundamental "principal" of insurance is having an "insurable interest."  Basically, you have to own the property.  So, you have Title and thus all the interest in the property.  So, your seller can't take out a policy.  You need to take out the policy.  I think you just need to add the mortgage clause as an additional insured.  Its part of the standard mortgagee clause.  As mentioned, to make that change, the mortgage servicer will have to be notified.  Then, the Note Holder should/could know about it.  

The Due on Sale clause is tricky since just about every Note is resold on the secondary market and usually resecuritized.  So, it doesn't help the Note holder to call in the Note --- unless you default / become nonperforming.  They always keep saying the "bank will do this.." But, the "bank" doesn't hold the Note, unless its a true "portfolio loan" (as I think is the current term).

2.  Doesn't matter.  Its a "normal" deal at this point.  Its just a mortgage.  The Note is held by a private individual and you gave the individual a mortgage.  Your seller is acting as the "bank/lender."

Hope that helps.  happy to chat.  Good luck.