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I'm selling my house and carrying the note. I carry dwelling insurance on the house and the tennants are making monthly payments included in their house payment to cover the insurance and the taxes. I have already paid the 2011 insurance at the cost of approx. $800.00. The monthly payments that the tennants are making for the insurance are actually for the year 2012. (It is in the contract that they carry renters insurance to cover their possessions.)
I want to make up a contract for my tennants that states if the house burned down, etc. that the note is paid off first and the remainder goes to the tennants to rebuild. Since I've already paid the 2011 insurance with my personal funds how do I word it in the contract that if something happens to the house in the first year that the insurance pays off the mortgage plus the amount paid for 2011 insurance?
In the remaining years the insurance would go to pay off the mortgage then the tennants would get the remainder to rebuild. I need to write something up so that they know they are covered should anything happen. I plan to keep the insurance in my name on the house until the mortgage is paid off. Any advice would be appreciated. I do have an escrow agent who will hold the title and deed, etc.
You also need to check with your insurance agent about the type of insurance you are carrying. I seriously doubt a regular homeowner's policy will cover you. Your tenants (that is what they are essentially until payoff) may also need renter's insurance. You should see an attorney about writing up your contract.
You need to get listed as loss payee and additional insured on the policy. You also might run into issues with YOU having the "owners" policy when you are selling it to them. No insurance company is going to insure the house for double what it costs-paying off your loan and coverage to rebuild. The buyers should have the homeowners insurance and you should be listed as the "mortgage company".
Say the mortgage is $100,000. It burns down and costs $250,000 to rebuild, the insurance company will pay to rebuild the house, submitting receipts for everything. The mortgage doesn't actually get paid off-they will still continue to make payments all through the process. If they DON'T rebuild, that is where the loss payee clause comes in, you get your $100,000, they pocket anything else up to the depreciated cost of the house. The insurance company only pays out replacement cost if you actually replace the house.
I agree that you should have a real estate attorney involved in this whole process.
To Golfgal,
Thanks for the info....you gave me more information then my insurance rep gave me....I have asked question after question about how it pays out and she has told me that the mortgage would be paid off first and what remained would go to rebuilding. She said nothing about the tennants continuing with payments through the whole process. I wish I had my policy here with me, I might have other questions. I think if I understood how the insurance process worked it would help, and you have given me a whole lot better understanding of the process. Thanks!
To Golfgal,
Thanks for the info....you gave me more information then my insurance rep gave me....I have asked question after question about how it pays out and she has told me that the mortgage would be paid off first and what remained would go to rebuilding. She said nothing about the tennants continuing with payments through the whole process. I wish I had my policy here with me, I might have other questions. I think if I understood how the insurance process worked it would help, and you have given me a whole lot better understanding of the process. Thanks!
It gets a little complicated but just look at the insurance as money to rebuild the house--there will be some construction/refinance things that will happen but for the most part, the insurance is there to rebuild the home which is why you want to insurance the house for the REPLACEMENT value not what you paid for the house-which is a common mistake.
Bascailly see a attorney as you will be the liean holder. Its really not possible to continue to claim all the insurance moeny when they have eqauity but you can control the release of it for repairs just as most lenders do.You basically need to be the lien holder on the policy.
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