Does Homeowner's Insurance Ever Accompany a Property Purchse?

Question

Hey BP'ers! Has anybody ever heard this or come across this? Can a property ever be purchased and the homeowner's policy goes with it. More along the lines of a claim made? Ex: If there was water or fire damage and you purchase the house and get the accompanying claim?

Thanks in advance!

Chad Jarrah · Answer

Thanks so much @Bill G.! Great info!

Bill Gulley · Answer

Yes, insurance loss proceeds can be assigned. There is an assignment in standard sale contracts to give a buyer the option to receive loss proceeds or avoid the sale after contracting and prior to settlement. An insurance agent will have loss assignment forms for the insured to sign and contractors often have assignments in connection with repairs required with loss proceeds, very common.

As to old losses that could have been paid, one insurance company may "subrogate" claims to the one providing insurance at the time of a loss. Not something the insured gets involved with usually as the insured assigns their rights of subrogation.

To assign loss proceeds, the insured must have an insurable interest in the property at the time of the loss. You can't collect twice from different companies either, so don't double insure any property, which is illegal in some states. :)

Chris Simmons · Answer

The only time I get push back on the claim is if the property owners have other properties and are worried about rate increases or cancellation.  Since most of the time I am dealing with estates, that is not typically an issue.  Also, with sharing some of the insurance proceeds with them and holding their hand through the process, they are generally happy to do what they can to help get this property off their hands.

Chad Jarrah · Answer

@Lynn M., I agree, if I was a homeowner I would deal with the insurance and have the repairs done myself. I guess some people would just rather not deal with it. It just seems like such a good way to make a profit  - coming across one of these damaged properties with the type of owner that would rather sell.

@Chris Simmons, you are correct in what I meant. Sounds like you're pretty familiar with it. Do the seller's ever have a problem with submitting the claim? I mean, do they ever refuse or seem put out by your request?

Chris Simmons · Answer

Assuming I understand what you are asking, I do something similar with many of my purchases, although on a much smaller scale.  On the most recent house I bought and two others that I bought in the last 3 years, I buy the house for rock bottom price.  I have bought from fatigued landlords and from estates and each time the properties were in pretty rough shape.  After getting the properties under contract, I have the homeowners file an insurance claim on the roof and gutters due to hail damage etc.  I usually split the proceeds with them so that the they get anywhere from 50% of the approved claim to $1000 just so they can walk away with something at closing.

On my last deal, I just picked up a check for $2856.   It won't buy the whole roof, but it makes a dent in an expense I was going to have anyway.   On the best deal, i collected $7200 with $1000 going to the seller.  I got the roof and gutters done for $5800.

I have to admit, rehabbing a fire damaged house is a bit bigger project than I would likely take on at this point.  Most places I see that are that badly damaged, I would rather level the site and start over.  Not sure what goes into those types of rehabs or what the rules and restrictions are.

Lynn McGeein · Answer

Do you mean the fire/water damage company buys the home from the current owners, then also gets the repair funds from the current owner's insurance company?  I would think that if the owners who own the insurance policy came to an agreement with their insurance on the amount of damages before the sale to someone else, then the insurance company could likely agree to issue the check directly to the contractor/buyer, or the policyholders could just agree to turn those funds over to the new buyer as part of the sale.    But why would sellers do that when they could have the insurance company fix up the home on the insurance company's dime, then sell it themselves?  If, in your example, the repair company buys for $100K, gets $100K from insurance company but only spends $50K on actual repairs, then sells for $200K, they make $50K on the sale.  If the owners DID NOT sell for $100K, but let the insurance company pay to fix it for them, then they could sell it for $200K, netting $100K more than if they sold to the fire/water damage company.  So it makes no sense financially, especially when insurance companies usually pay living expenses to live elsewhere during major repairs.

Wayne Brooks · Answer

Yes, I think it is possible to have an owner assign their rights to an insurance claim.  Obviously, you'd want to verify this with the insurance co.

Rodney Marcantel · Answer

Our RE agent purchases the first year home owners warranty against any hidden issues. Covers electrical, plumbing, termite, fire, appliances, A/C and more. If you don't have an RE agent that does this for you at closing, then find another RE agent as they will fight for your business and give more or ask your current RE agent to begin providing a home owners warranty for the first year or you'll part ways.

Most agents will do this for their own protection too against selling a bad home.

Chad Jarrah · Answer

Hey @Joe B., nice to meet you and thanks for the response. What I mean is I've heard of a Fire/Water Restoration company in my area that gets called in for an estimate on a badly burned house. The company would then make a fair offer and the family would jump at it because then they wouldn't have to deal with the repairs dragging out. Then apparently the company would get the property and the claim . So for example they pay 100k for the prop and they get the claim worth 100k and make 50k in repairs; property gains value because of updates - total win for the company when they re-sell. Just sounds too good of an idea to be true and wanted to see if anybody ever heard of anything like that.