All Forum Posts by: Xavier G.

Here is the hypothetical situation:

Somebody's house flooded, they file a claim and then sell the house right away without doing any repairs. Do the sellers still get the full check from the insurance or do they lose some of that because they've already sold the house without doing any of the repairs.

When I had a (non-flood) claim before, the insurance would give me a first check for let's say 60-70% of the estimated repair amount and then would send me another check for the remainder of the amount once the work has been done. I have heard that some other insurance insist to pay the contractor directly (no money goes to the homeowner).

Based on that, I would assume the seller still get a partial check but not all of it but I'm not sure. What's your experience?

Could the seller assign the insurance claim to the buyer since the buyer is going to do the repairs? Doesn't sound possible but just wondering ...

Thanks!

Here is the hypothetical situation:

Somebody's house flooded, they file a claim and then sell the house right away without doing any repairs. Do the sellers still get the full check from the insurance or do they lose some of that because they've already sold the house without doing any of the repairs.

When I had a (non-flood) claim before, the insurance would give me a first check for let's say 60-70% of the estimated repair amount and then would send me another check for the remainder of the amount once the work has been done. I have heard that some other insurance insist to pay the contractor directly (no money goes to the homeowner).

Based on that, I would assume the seller still get a partial check but not all of it but I'm not sure. What's your experience?

Could the seller assign the insurance claim to the buyer since the buyer is going to do the repairs? Doesn't sound possible but just wondering ...

Thanks!

Mike Wright Tom Gimer @gregH, Thanks guys. I've done some more research, it seems that my only additional exposure with title insurance in a Special Warranty Deed vs a General Warranty Deed is that the title insurance won't cover an issue that was not present at the time the title insurance is issued (e.g. a mechanic's lien that would be put on the title way after the facts). The SWD would cover it if the issue originated while under the bank's ownership (even if the lien was placed after the sale) but not if it happened during the previous owner's time. And the General Warranty Deed would cover that situation, did I get all of that right?

I am looking at a property in Texas that is in Foreclosure from a reverse mortgage company. The previous owner was a hoarder and my research seems to show that he was foreclosed on because of past due taxes (on top of not taking care of the house and getting the HOA on his back). The reverse mortgage LLC will sell this house with a special Warranty Deed which only covers their period of ownership. I have read that this is common in the foreclosure world. The Company foreclosing also chooses the title company as is also usual in this situation (from what I understand). My question is, how do I cover myself? Would an owner title insurance be enough? I will be paying cash. Thank you in advance!

@brandon Davis, I do live in Tomball and as Fred mentioned, this is a fast growing area. We've seen some for sale prices on non-flooded houses in the area go up maybe 10% in the past weeks on the premise that they did not flood. I personally think that it's people being greedy and they won't sell for that. If anything, the price of the flooded houses should go down not the non-flooded go up but future will tell. The current price of houses in Tomball has already blown up in the past few years, i don't think it can take another sudden jump. I invest in the area, so don't hesitate to get in touch if you'd like to.

@Jeremy Paschedag & @Joe Swanson,

Agreed, I also had the feeling that you would be paying quite a bit of money ($4-5k) in closing costs to only get $36k out of it. Better cash flow but more costs over the life of the house.

If you have enough equity on your house, you could find a HELOC that will cost you close to nothing to open (and keep opened) and that could get you that same amount for a short term until you refinance your new acquisition.

Just to clarify on my previous post, I talked to a few other banks today and clarified the "call out the loan at any time" possibility and what I was told is that the only thing they could do is limit my line of credit to a lower amount (so I could not borrow more money out of it) if things started going south like in 2008-2009, but they could not just ask for all of the borrowed money back.

One of them also clarified that at the 10 year draw, the rate would become fixed to whatever the rate was at the time + 1 or 2% depending on the repayment period.

Another point to clarify and that they will lend to you up to 80% of LTV but no more than 50% of the value of your house.

A good news though is that the two banks I talked to were offering interest only payment for the draw period (10 years) which fits nicely in the BRRRR strategy since you plan on repaying the money within a year or so when refinancing the property. You're basically not tying up additional money to repay the principal during that time period. I'd be careful when getting close to the end of the draw period in case you cannot refinance right away.

Just be careful to have a plan to reimburse the HELOC quickly if rates were getting out of control since your primary residence is on the line!

And again, some of the numbers above may be different in your state due to specific state regulations.

@Jeremy Paschedag

@John Leavelle seems to have covered the rough numbers for the cash out refinance pretty well and I am not expert in that matter so I don't have much to add to that.

However, you asked about the HELOC. I recently looked into HELOC in Texas (the rules are different in other states) and it seems like banks will only do the HELOC on your primary residence (maybe I didn't look hard enough). There are small closing costs (a few hundreds typically) but the interest rate is variable. Some may have a yearly fee (usually around $100 or so). 

The bank will use the same criteria (approx. 80% LTV - money still owed) to determine the max amount for the line of credit.

You may be able to find a HELOC with interest only for the "draw period" (which I have typically seen at 10 years but it could be different) but most of the ones I looked at required interest + principle payments. During the draw period, you can draw as much money as you want (up to your HELOC limit) whenever you want. After 10 years, you cannot draw money anymore and you have 20 years (again, typical of what I have seen but could be different) to repay whatever you still had taken out by the 10 year mark (still with a variable rate).

The benefit of the HELOC is that you do not have to take any money out when you open it. So you only start paying interest when you take the money out, which could be 6 months down the road. You can use that money for the down payment of another house or to pay it in full and then refinance the house after a year, put the money back in the HELOC to avoid paying interest and take it out again when you need it. Please keep in mind that you may have prepayment penalty in your state.

One of the main problem is that the interest rate is variable, so you really don't want to be in a position where you have to keep the money out very long as the rate could climb up.

The other problem I have heard of but haven't had time to investigate further is that, apparently, the bank can call the HELOC at any time, meaning they may ask you to reimburse all the money they gave you at one point if they feel like it. So you would have to cover that risk by having a plan to get that money if that was ever the case.

People seem to have better luck getting better terms with small credit unions. I did not in my area so far.

Hope this helps!

Russell Dancer You will have to take these numbers into account. Technically, refinancing will cost you more money because of closing costs and interests to be paid for a longer period. People refinance to get the cash out of the property to buy another one with the idea that they will make more money with that new property than what it cost them to refinance. If you are not going to do anything with that money, don't refinance. If you are going to buy a new property, it would make more sense to apply the costs to your old property as the loan will be on it. It will show lower "cash on cash return" because of the closing costs and increased loan payments and your cash flow will decrease (and it will definitely decrease after 4 years when compared to your current situation). The numbers on the new property will look better for cash flow since you already have the money to invest, until you decide to refinance this one too! Hope this makes sense!

@Cameron Tope, I completely agree. Nobody should use someone else's numbers without due diligence. I was just looking for comparison to see if I was way off or maybe just looking in the wrong area.

Regarding the taxes, that brings up an interesting point. I can see where the first year tax could be lowered based on purchase price (it worked on my current house) but I can also imagine that the year after that, the tax man could bring the value back up based on comps in the area and there would be no homestead exemption to protect against a big increase. Wasn't this the case on your house?

John Leavelle , Good point. I just consider them the same for the purpose of calculating numbers on potential properties (since I don't take into account the impact on taxes).