All Forum Posts by: Chris D.

@Anthony Lee. Thanks Anthony. I replied to your email. 

Hello BP family: I'm doing some lending and am getting conflicting information on builder's risk policies. Need some advice on this very confusing topic. My rehabbers often don't want me to speak with their insurance agent/companies. 

1) Someone indicated that builder's risk often DOES NOT cover the existing structure...thus if your contractor is doing a light rehab and the house burns to the ground, the existing structure is not covered. True or False?

2) Someone else told me to make sure to insure 80% of replacement value on a builder's risk policy. If #1 is true, then what would be the purpose of the 80% if the policy doesn't cover the existing structure?

I'm looking for advice on how to counsel my borrowers on the type of insurance that will protect both our interests. Most of my borrowers are buying pre-60's constructed homes and replacing/upgrading electrical, plumbing, HVAC, flooring, etc. The homes are always vacant until they are resold. Spoke to a nice guy today who reminded me that in addition to whatever dwelling, builder's risk policy is in place I also need to make sure the contractors' working on the house have workers comp policies..whew....a lot to know here.

As an aside, I have a loan now where the rehabber is going to be removing the roof and adding a second story. We are waiting for the permits to be approved (house will be VACANT and unoccupied for at least 2 months). In this instance we were advised that we need a vacant dwelling policy until the work commences and then the policy will have to be switched to builder's risk. 

Any advice would be appreciated. 

Hi: I am looking for an attorney from the Raleigh area to provide documents for a lending package (deed of trust, promissory note, personal guarantee) for private loans to an experienced rehabber. Ideally, I would also like someone who can review title and LLC Status. Once we establish a package, we'd just change the numbers as new transactions come up. There will not be any construction draws, only acquisition financing. Please PM me if you know someone who can help.

Hi: I am looking for an attorney to provide a set of lending documents....Deed of Trust, Promissory Note and personal guarantee if possible for an experienced rehabber in the Raleigh area who wants me to fund acquisition only on his flips. 

@Jason Balin: Hi. Jason. Looks like you are in my neck of the woods. I wanted to thank you for taking the time to reply. That answers my question.

I am considering financing a local investor who is buying a partner out. My borrower also owns an apartment complex financed with a bank loan and bought within the last year with other investors. I'd be providing financing for 70% LTV on fee simple homes where the current first trust will be paid off and I will have a first deed of trust. There has been appreciation since the acquisitions so he will be able to pull some cash out to buy the partner out. My concern is if the properties I am financing are involved in a cross collateral agreement that relates the apartment sale, and there is some kind of default, would the bank be able to step in (because their agreement precedes my first trust) and prevail to recover the properties that I have the first trust on? Does anyone know if cross collateral agreements are recorded in land records against properties that are collateralized? I hope my question is clear. Any opinions would be greatly appreciated. I have a terrific commercial lending attorney but will be interested in feedback from the BP family. Thanks in advance.

@Account Closed Hi Mike. Thanks so much for giving me the resource in Maryland. All of the properties I lend on are in VERY rough shape. Often times the gas and other utilities are turned off. It sounds like I need to develop a good understanding about the nuances of builders risk and vacant and unoccupied properties. Thanks so much for your response. It's very helpful!

@Derek Lacy Hi Derek. Thanks so much for your response. I found some good information on the web due to your response and it seems like my concerns about binders is valid. It seems like lenders should really dig in to familiarize themselves with the nuances of insurance policies so it looks like I have some reading to do. Thank you for taking the time to get back to me. 

@John Thedford. Hi John. Thanks. Yes, I'm listed as the "Mortgagee". Generally on a flip property you want builders risk for I think 80% of replacement value based on something called the Marshall and Swift tables. I just did a loan on a house where the borrower is going to remove the roof and add a second story. It will take at least 6 weeks for the borrower to get plans and permits approved so the house will be vacant for at least 6 weeks. In that instance, the borrower needs a policy for a vacant and unoccupied house (more expensive than builders risk). Once construction starts they will need to buy a builder's risk policy. My issue in Maryland is that I am seeing what are called binders which can be pulled back by the insurer.

@Russell Brazil: Hi Russell. Thank you for your response.  I always have a lien in first position on the properties I lend on. I didn't  phrase my post very well. The question relates to the insurance my borrowers procure. My borrowers in Virginia get a policy paid 6 months in advance at settlement so I know I'm covered at least for 6 months. The insurance payment is on the settlement statement.  In Maryland, I'm noticing binders. The verbiage in the policy gives the insurer 45 days to confirm eligibility. Some of these properties are in really rough shape so I'm wondering under what conditions an insurer would refuse coverage?