HOMEOWNER'S INSURANCE? GET A CLUE!
THE PROBLEM:
Your client's closing is scheduled for next week. You've reconfirmed the appointment with her and reminded her to buy homeowner's insurance and to bring the receipt to the closing. Panicked, she calls you back and reports that none of the half dozen agents she spoke with will sell her a policy. Now what?
The need for homeowner's insurance is a "no brainer". Even if your buyer doesn't want it, the mortgage lender is going to insist on it. But what happens if the house under contract is uninsurable? Insurance underwriters across the country are reevaluating the risks they are willing to insure against. As a result, many home buyers are finding that needing insurance isn't the same as actually getting insurance. This problem is very real and is is fast becoming one of the biggest traps for unwary buyers - and hapless sellers.
HOW BAD IS IT?
It's hard to feel sorry for 'em, but insurance companies claim they are in deep trouble: too many natural disasters; too many claims; too much money paid on those claims; poor returns on investments; 9/11.
The insurance industry tells us that it suffered nearly 9 billion dollars on home-related underwriting losses last year and that even premium increases of 40-200% cannot cover those losses. State Farm reported that it paid $95 million last year in Illinois alone for claims relating to ice damage in gutters and roofs. State Farm also claims that it paid $1.55 in claims for every $1.00 of homeowner's premium last year. For a time this year, it stopped writing new homeowners insurance in Illinois altogether (State Farm announced earlier this week that it would begin selling new policies again).
THE INSURANCE INDUSTRY'S RESPONSE:
Insurers are placing increased reliance on a national database that effectively blacklists homes and homeowners who have the nerve to actually ask them to pay out on a contract they sold! The Comprehensive Loss Underwriting Exchange (C.L.U.E.) run by ChoicePoint, Inc. has been tracking homeowner policy claims for about 10 years now. More than 90% of all insurance companies use it to share information.
Too many claims? Too much risk? Too bad - no more insurance. Homes that have been hit by water damage, storm damage, mold claims or burglaries are particularly vulnerable to rejection.
WHAT THIS MEANS FOR HOMEOWNERS/BUYERS
Homeowners with an unfavorable claims history may find it impossible to renew or replace an insurance policy. If insurance is offered, it will come at a price - steep premium increases.
Buyers who learn of insurance problems too late may wind up committed to a contract they cannot complete (how do you close on that mortgage loan without proof of insurance?).
Sellers whose homes are uninsurable may find that their homes have also become unsalable.
Without advance knowledge AND an insurability contingency, buyers face the risk of being unable to close the deal. Buyers and Buyers agents are urged to investigate this issue early on in the contract process.
FOUR WAYS TO HELP PROTECT YOUR CLIENTS:
- Ask the Seller for a C.L.U.E. report at the outset of the contract. Reports only cost $20 and can be ordered on-line.
- Promptly review the C.L.U.E. report with an attorney and insurance agent
- Make sure that the contract provides a C.L.U.E. contingency - so that the contract can be cancelled if a problem is discovered.
- Urge clients to shop for insurance among several companies to find the best premium and coverage available. (Don't assume all policies afford the same coverage; don't assume all companies charge the same rates)
YOUR NEXT STEP
Call 312-726-1512 or e-mail Mike Wasserman at info@wasserlaw.net if you would like a sample CLUE contingency form, or if you would like contact information to reach ChoicePoint
