How Do You Insure a “Subject To” Property?

Diversion and Diversification:

Are the two reasons I invest in rental properties. 

Has anyone ever purchased a property on a “Sub To” basis? This one fell into my lap so I picked it up “subject to” seller finance, the loan will remain in the seller’s name.  The motivation was a 3.65% interest rate and low down payment. I closed by paying a small amount to the seller and some to the agent, and the title was transferred to my name by the very proficient Christina Moser at GT Title.  

The lender can call the note due if – they discover the title has changed. In all my years of working with property investors, I have never seen a loan called due with the exception of Utah Housing. Don’t ever try a “Sub To” with UHC. 

While I am not your typical “Sub To” property investor, this property appealed to me. I have found renting to hard-working folks within the Hispanic community rewarding, there is a need and opportunity there.  I closed the Wednesday before Thanksgiving and had it leased to an ideal tenant by Saturday. 

Insurance for subject-to-properties can be tricky. When Christina asked my professional opinion, I gave her the same advice we give all “Sub To” investors.  The party on title has “insurable interest,” and the insurance policy needs to be in that individual’s or entity’s name. In addition, the seller, whose name is on the loan, will have to maintain insurance to satisfy the lender. The seller’s policy only satisfies the lender since they have given up their insurable interest.  It’s important for the buyer to have appropriate coverage in this type of transaction. 

In conclusion, most “subject to” properties will have two policies. The original policy maintained in the seller’s name. This only satisfies the mortgage company, the seller gave up their financial interest when the title transferred into your name. In addition, the policy was written as an owner-occupied policy and thus the declarations made at the policy inception are no longer correct. Filing a claim against this policy is probably not going to result in a payout and would certainly raise a lot of red flags. With the title transfer and insurable interest, the investor should write an additional policy in their name. We do not recommend listing the mortgage company on the new policy. If you occupy the home, you can write the policy as a homeowners policy or as a landlords policy if the property is now rented out.

If you need to insure a “subject to” property, give Anderson Insurance Group a call. We understand and love working with all types of investors.

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“Subject To” Insurance in Utah

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