Homeowners Insurance - Rent/lease to own

[polarisxcsp]

Long story short: I was originally going to do a land contract with a relative of mine. The first people she talked to thought we were going to be able to go through with it, come to find out we can’t because she still has an existing mortgage on it. So therefore, we’re just going to do a lease/rent to own deal with all payments made deducted from the purchase price agreement.

I called and spoke with my insurance company and they told me that since the dwelling is in her name and not mine that I cannot put a homeowners policy on it. Basically I have no insurable interest because it’s not legally mine and you can’t insure something you don’t own so I will just get renters insurance and she will continue to carry her homeowners policy. Which makes sense to me…

Now…my relative’s insurance company is saying that I can take out a homeowner’s policy on it.

Any input...

 

[booondocker]

Long story short: I was originally going to do a land contract with a relative of mine. The first people she talked to thought we were going to be able to go through with it, come to find out we can’t because she still has an existing mortgage on it. So therefore, we’re just going to do a lease/rent to own deal with all payments made deducted from the purchase price agreement.

I called and spoke with my insurance company and they told me that since the dwelling is in her name and not mine that I cannot put a homeowners policy on it. Basically I have no insurable interest because it’s not legally mine and you can’t insure something you don’t own so I will just get renters insurance and she will continue to carry her homeowners policy. Which makes sense to me…

Now…my relative’s insurance company is saying that I can take out a homeowner’s policy on it.

Any input...

This isn't true...folks insure things they don't own all the time.

I know that one of the agents who follow this will have a better chance of guiding you on this, but I believe that you have a company that has a guideline that says if you aren't on title you can't insure it.

Shop around....and you will probably find a company that will...if you don't want to use her company, which frankly sounds like the easiest thing to do.

Another way to skin this cat, is to do up an agreement between the two of you that says you have $100 interest in the property, add you to the title with said interest, and a bonified side agreement that says she can buy you back out interest free anytime, by the repayment of the $100.

Record the deed and get your insurance based upon a copy of the deed supplied to the agency.

 

[tealracing16]

Basically I have no insurable interest because it’s not legally mine and you can’t insure something you don’t own
Any input...

You can not insure anything you do not have an insurable interest. You do not need to own it to have an insurable interest in it.

Write up a simple contract about the lease/rent and then insure it.

 

[Dave_B]

To lenghty to discuss. Send me an email and we'll talk.

Dave

 

[mikeh906]

How about renters Ins?

 

[mezz]

If your not on the deed, you cannot insure it. If you were doing a land contract, you could insure it showing the contract holder as an additional interest. In light of the fact that the seller has a mortgage on the property, the mortgagee may or may not allow a sale with a land contract. Possibly you & your relative could draw up a contract that would allow you to rent from them with the rent going toward the purchase of the home. However, you would technically still be a tenant in that scenerio & could only insure your own personal property with a tenants policy, this covers your belongings as well as any liability within the confines of the home. The seller would have to maintain the dwelling coverage & premises liability.-Mezz

 

[anonomoose]

If your not on the deed, you cannot insure it. If you were doing a land contract, you could insure it showing the contract holder as an additional interest. In light of the fact that the seller has a mortgage on the property, the mortgagee may or may not allow a sale with a land contract. Possibly you & your relative could draw up a contract that would allow you to rent from them with the rent going toward the purchase of the home. However, you would technically still be a tenant in that scenerio & could only insure your own personal property with a tenants policy, this covers your belongings as well as any liability within the confines of the home. The seller would have to maintain the dwelling coverage & premises liability.-Mezz

Depending on your tax bracket, and whether you itemize deductions or not, mortgage and land contract interest is deductable. As a tenant you get screwed because rent is not deductable and your relative will be charged interest received at a rate of 7% even if you are renting as "interest" such as in a zero percent interest land contract by IRS rules. Also, as rent, she will pay tax on it as income.

I would either do a land contract and NOT record it, show it to the insurance company, which can not require you to record the contract and then just live there and record the deed when you are done paying on the contract. You then can insure the house showing your relative as having an interest in the property...lien holder. Do NOT send a copy to the relatives bank. She will have to keep her insurance going on the property as it is so that the bank won't know that there is a land contract, which would also require her not to tell HER insurance company that she is NOT living there, aka a wasted policy.

Another way to avoid the due on sale clause, is to form a trust and add you as a trustee along with your relative spelling out exactly what and how your interest is to be defined in the property, gaining more and more percentage of interest over time, as the contract gets paid down. This avoids issues with the due on sale clause and also would keep your relatives interests protected and insured.

 

[mezz]

Depending on your tax bracket, and whether you itemize deductions or not, mortgage and land contract interest is deductable. As a tenant you get screwed because rent is not deductable and your relative will be charged interest received at a rate of 7% even if you are renting as "interest" such as in a zero percent interest land contract by IRS rules. Also, as rent, she will pay tax on it as income.

I would either do a land contract and NOT record it, show it to the insurance company, which can not require you to record the contract and then just live there and record the deed when you are done paying on the contract. You then can insure the house showing your relative as having an interest in the property...lien holder. Do NOT send a copy to the relatives bank. She will have to keep her insurance going on the property as it is so that the bank won't know that there is a land contract, which would also require her not to tell HER insurance company that she is NOT living there, aka a wasted policy.

Another way to avoid the due on sale clause, is to form a trust and add you as a trustee along with your relative spelling out exactly what and how your interest is to be defined in the property, gaining more and more percentage of interest over time, as the contract gets paid down. This avoids issues with the due on sale clause and also would keep your relatives interests protected and insured.

Holy Wah! I'm dizzy after that lesson The suggestion to have a contract of sale was merely a way to address "insurable interest", if you don't own it, you cannot insure it. The seller can modify the type of coverage (policy) on the home without the bank raising an eyebrow, as long as their interest is covered it matters not. What you are suggesting by way of insuring the property is unethical. Companies want proper underwriting & must know if the home is "owner occupied" or "tenant occupied". Best to keep things above the board.-Mezz

 

[Dave_B]

Depending on your tax bracket, and whether you itemize deductions or not, mortgage and land contract interest is deductable. As a tenant you get screwed because rent is not deductable and your relative will be charged interest received at a rate of 7% even if you are renting as "interest" such as in a zero percent interest land contract by IRS rules. Also, as rent, she will pay tax on it as income.

I would either do a land contract and NOT record it, show it to the insurance company, which can not require you to record the contract and then just live there and record the deed when you are done paying on the contract. You then can insure the house showing your relative as having an interest in the property...lien holder. Do NOT send a copy to the relatives bank. She will have to keep her insurance going on the property as it is so that the bank won't know that there is a land contract, which would also require her not to tell HER insurance company that she is NOT living there, aka a wasted policy.

Another way to avoid the due on sale clause, is to form a trust and add you as a trustee along with your relative spelling out exactly what and how your interest is to be defined in the property, gaining more and more percentage of interest over time, as the contract gets paid down. This avoids issues with the due on sale clause and also would keep your relatives interests protected and insured.

Land Contract interest is deductable but only if the Land Contract is recorded. If it is not recorded, he has no LEGAL vested interest in the home and, therefore cannot write off the interest.

In the State of Michigan, the homestead exemption is only allowed on the home that you claim as your primary residence. If she no longer lives there, she no longer can legally claim the exemption on the other property. Her insurance would have to be revised to tenant occupied. The bank has nothing to do with that. They could call in the note if they discover that the property is no longer considered her primary residence if that is how it was originally financed. I've never seen that happen though.

Forming a trust at this point would not have anything to do with a potential due on sale clause. If she sells the via Land Contract, it doesn't matter who the trustee is, she is still on title to the property and therefore has not technically removed her interest from the property. She has only changed her use from primary to tenant occupied.

Another thing to keep in mind, the balance of the existing mortgage(s) cannot exceed the principle balance of the Land Contract. If it is, the individual who purchased the home via Land Contract may not be able to sell it the property outright or refinance it into a mortgage of their own.

Dave