Existing Insurance Policies and New Purchases

To try to work around insurance issues involved with purchasing property, some choose the route of applying for an LLC. This is done because some don’t feel comfortable getting an insurance policy in their personal name and then having that sent to the mortgage company. Applying for an LLC, however, can be a time consuming challenge in itself. In any event, insurance would need to get established with a new insurance company. You can send the policy with the LLC's name to the mortgage company, or you can send a letter. But the most efficient way to do it all via the Internet.

When you buy a property subject to the existing mortgage, the insurance policy that is on that property covers the previous owner - your seller and mortgage company, and any other significant lien holders who feel that feel like they need to be addressed in that policy. When the property changes hands, you as the new owner have a problem because the insurance policy is still in the other owner’s name.

For this reason, it is important to apply for new insurance. This should be done with a local insurance agent.

The best recommendation is to get the new policy to list the first mortgage company. The second mortgage company should be next in line, followed by any other parties who feel like they need to be insured on that policy. And then lastly, you as the new owner.

This should be done in this order because the old insurance company is not gonna let you cancel somebody else's policy, which is a good thing. The reason for taking the steps in this fashion is to show that insurance never is completely off of this property at all. Once the new policy is in place, a letter can be sent to the old insurance company requesting to cancel the policy. You can ask your seller to sign as well for proof to show that it is agreed upon to cancel the policy.

With the new policy in place, contact your new mortgage company asking them to list the new policy as the one on file for the property.

If you are concerned about a loan being recalled due to a situation like this, you can rest knowing that this is something that rarely every happens.

Obviously there are many insurance companies to choose from. Which ever you decide to use, know their policies before choosing them. Some have a two week waiting period in getting the policy activated (State Farm is one of the companies). Be sure you consider these when scheduling closing dates.

The rule you should follow is very simple: get new insurance right away on the property! It should be done before going to closing.

For additional information on real estate investing and the hot foreclosure market, I recommend joining Ron LeGrand's Millionaire Maker Newsletter The newsletter itself is loaded with great tips and resources, and he's usually giving away something free like a CD or something that generally has a lot of great information on it.