Setting up Insurance with new Property under contract

[Tyler Davis]

Hello!

I have a done a few deals and have always had issues with the insurance part of the process. 

My issue is my Lender need's proof of insurance on the property before he signs off on it and gives the final okay to the title company to finish closing. The problem is I can't setup insurance until I have a closing date from my title Company(to put the effective date on the policy). As you can see it's a endless loop of:

- Lender needs insurance

- Insurance needs closing date from Title Company

- Title Company needs sign off from Lender before closing date is set

Obviously, I can set the insurance date to the closing date on the Agreement of Sale but there are instances where closing has taken longer than that date and we've had to write up extensions. In these scenarios I've had to cancel my policy and rewrite it to the new date( my insurance agent does not like doing this and say's its frown upon to cancel policies so I don't like to setup insurance right away).

My question to the Bigger Pockets community is, at what point in the closing process do you setup insurance? Do you setup insurance right away with the closing date on the AOS? Do you wait to setup insurance until Title Company has a closing Date?

Thanks!

[Bo Bond]

Tyler,

As insurance agents and lenders we know this battle all too well.  It can certainly be frustrating for all parties involved.  From the landlord position, "most" just want the deal done and to move forward, but understand that there are certain standards that must be met on both sides before that can happen.  It's been my experience that communication between the agent, lender, and landlord is the most vital part of this process.  That's because while most lenders and insurance agencies are similar to the next, some may be willing to do more than others (or things a little differently).  That said, this really hinges on the flexibility of the lender your dealing with in my personal opinion.  Some have good flexibility, work in this niche a lot, and understand the process pretty well from both sides.  Others can be difficult and create more hurdles.  I have to believe this is due to the guidelines they're following (forced to follow) if looking to sell the loan on the secondary market, how often they work with real estate investors/landlords in general, or how new your loan officer is.

I've been most successful in telling both the lender and the landlord that we "prefer" to hold off on proof of insurance / binder until we have a "very firm" closing date (and explain why via email or phone).  That's most often 5 days out from their closing date.  This allows both the lender and title to ensure they're 95% in possession of what they need to close the loan.  Once we have that date and we're a week out, we look to bind and issue the COI that same day.  Typically having that COI 5 days in advance of their closing date is plenty of time for all parties to get things done in a timely manner (usually with room to spare).  We don't like to bind anything more than a week out, but sometimes have to make exceptions depending on the pressure the investor is getting from their lender.  We just always remind the investor and lender of the hassles and delays they can expect when/if the date is pushed out and we have to cancel and rewrite everything.

Binding 10-30 days in advance of a closing date and then having that date changed causes the lender little issues (from what little I know about their processes), but can cause many agents/carriers significant issues.  Again, more specifically for those agents who do a lot of work for real estate investors and who get 10-50+ of these requests a week.  

This situation causes us significant issues because we now have to cancel everything, rework the account internally and with the carrier, produce new COI's, binders, policies, adjust payment / premium details, billing, etc.  For some agents (direct writers) this may be easier than others, but I think that depends on the type of account your writing and what systems they're using.  Unfortunately for most, it's not just clicking a button and everything's undone. In most cases, this takes quite a bit of time and will certainly delay things depending on agency/carrier processes, agency/carrier systems, carrier/underwriter workload, carrier/underwriter response time, etc.  

While we don't mind work, if every property added in a day/week to a policy is processed in this fashion (10-30 days out from closing), and half of them have to be completely canceled and reworked, you can only imagine how much this might quickly overwhelm an agent/agency staff.  In your case, if you deal with the same lender, title company, and insurance agent majority of the time, you may get them all on the phone to dig into their processes and come up with a solution.  While most won't need to do this, investors who consistantly buy new properties might consider doing this if they're having issues and can't get resolution.  Understanding what each party needs and what their processes are certainly helps.

Hope this helps!  Good luck!