Sub2 To Land Contract Insurance
I don't think this question is redundant because I couldn't find it on here. I am purchasing a property SUB2 and then plan to immediately sell it on land contract.
I talked to my insurance agent and he said insurance should be handeled this way:
Standard homeowners policy obtained by my buyers
Mortgage company as loss payee in 1st position
ME as loss payee in 2nd position
my buyer as primary insured
the seller who is responsible for the loan as additional insured.
Thoughts? THANKS
Hi Frogger,
If you "technically" own the property, even while being sold on the LC, I feel you should be first named on a landlord type policy. If you (or of course, your entity) hold the deed you are the most at risk if it burns. If it burns and it's yours to recover, I wouldn't want to be 2nd, or even 3rd in line to collect. Just my 2 cents...
The lender, since it is in first position will always want to be in first. In addition the once the lender reviews the evidence and the mortagee clause is not correct it will flag them.
The lender is an additional insured from a liability perspective and a loss payee from the property perspective. The 1st named insured is/should be the entity that holds title/deed.
Frogger,
Simple way to do this is as norrist suggested. You get a landlord/dwelling policy in YOUR name and your lender as additional insured. Your buyers should get a contents/renters policy (I also require mine to add a $300K liability as well) with you as additional insured. This is the way I do it. Simple, effective, and have had no problem with it.
A point of topic that you should be aware of before selling on LC. Selling on land contract will be concrued as an outright sell, even though you are collecting payments on your "profit." So if you bought it for $100K and sold it for $150K, then you would be responsible for normal taxes on $50K in profit the year of the sell (the signing of the contract) even tho you may have only collected a small downpayment and a few monthly installments. So be prepared at tax time if you choose to go this route.
Roger
I am not familiar with using a trust and am considering it since this is the first property i've purchased that I haven't rehabbed and sold quickly.
Does the owner basically put the property into a trust and then assign beneficial interest over to me? If I go to get insurance is it the trust that carries the insurance?
Also who has the deed? Is there transfer tax paid when I buy the property? When I go to sell, how does that transaction work? Does my entity prepare a deed for the buyers?
Help please. Thanks
Okay, frogger, now I'm confused.
Where did the trust thing come into play here?
If you're asking questions like "who has the deed" you might want to back up a bit on this deal until you get a better grasp of the situation.
If you're buying this property "subject to the existing mortgage" then the only real difference between this closing and any other closing is that you will be making the payments to their lender has opposed to one of your own. You get the deed "subject to" the existing mortgage, which means that you understand that it has a mortgage and are willing to take care of it outside of closing.
As far as selling, that depends on how your are selling. A straight sell is a normal closing. If you sell on land contract as mentioned, then there is no title exchange until the terms of the contract are fulfilled.
Roger
Yeah I've confused myself. My question should really have been another post.
I know how to do the deal without involving a trust. My question was regarding the mechanics of using one.