Seller Financed property, seller not placed on Insurance Policy

[Phillip Gainey]

A friend of mine sold a property in Memphis a few months back offering seller financing. The buyer never placed him on the insurance policy as "mortgagee". He has tried to get the buyer to do so, to no avail. All she has to do is call the freaking Ins company and have him put on the policy!

What are his legal options?

Oh yeah, and he has had to chase after her most months for payment. Seems she is always "out of town".

Thanks

PG

[Dion DePaoli]

The Mortgagee does not need permission to get added to the insurance policy. If Mortgagee knows who the current insurance provider is, all they need to do is call and give their Mortgagee information and perhaps send over a copy of the mortgage and note. The insurance company will comply.

If insurance company is unknown, the lender should send a specific letter dated and to the borrower stating the situation in detail. Give the borrower 10 days to forward to the lender proof of insurance with the Mortgagee as a beneficiary. (provide the mortgagee clause in the letter) In the letter inform the borrower that failure to complete the action and forward the correct documents to the lender will force the lender to assume the property is not insured and the lender will exercise their rights within the mortgage and note to insure the property. Include a little statement that says, this is not an insurance policy to substitute the borrowers requirement and the borrower is not a beneficiary of said policy. Include the point that the borrower is responsible for the repayment of any and all expenses related to the same. I would also include the language within the note which triggers the Acceleration Clause in the note and mortgage. The acceleration clause are events which allow the lender to call the total loan due, lack of insurance is not always one of them, so look this up in the documents.

I would get away from phone calls, get into the letters. Maybe do it twice, just to prove to any court you gave plenty of chance to the borrower. Then I would pick up the phone and purchase LPI (lender place insurance). Then send the bill the to borrower. (the lender will have to pay for it in advance).

Sometimes there is language in the note and security instrument that allows a lender to not only collect on any and all advances (such as taxes, insurance and legal fees) but also charge interest. I would in writing point that out the borrower.

If you have the right as the lender to call the note due, ensure you send a couple of notices to the same. You want to start building your case so when you get to court (if it goes that far) all the lender's ducks are in a nice pretty row.