As a real estate investor, you have to be ready to protect your investment. That means finding the right insurance policy. In this episode, Chris Seveney discusses insurance with Beth Boisseau-Coots, VP of J.B. Lloyd and Associates, and Shante Duffy, founder of BIFI Loan Servicing. They discuss how to protect your real estate investment and analyze the different kinds of insurance policies you can choose from. Learn more about insurance policies and their pros and cons by tuning in.
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Taking Insurance And Loan Servicing To The Next Level With Shante Duffy And Beth Boisseau-Coots
In this episode, we are going to have a little mixer in regards to talking about lender-placed insurance, as well as some of the new and exciting things that Shante has established in relationship with Beth in regards to bringing what a lot of investors wish they could have under a forced-place or investor-policy. We’ll learn about some of the exciting things that are coming out. For those who haven’t read prior episodes, we’ll talk a little bit more about forced-place insurance and exactly what it is. I’ll turn that over to Beth to talk a little bit about the different types of policies that are out there for investors.
Lender-placed insurance or also known as force-placed insurance, is an insurance product for lenders to cover their interest in properties or other assets when the borrower does not keep their insurance in place. For example, a bank will have a forced-place policy so that when the borrowers let their insurance lapse, they can then place the coverage on the balance of the loan. If the loan goes into foreclosure, once the borrower lets it lapse, that’s the beginning. The policy adds liability to that property.
The other type of policy that we use a lot or we see a lot is real estate investor policies. They’re similar to the forced-place policy. The difference is that they are more geared for real estate investors who are maybe investing in properties to rent or to fix and flip. Maybe they started as lenders like a note investor and through a series of events, they became a landlord or did a contract for deed where their name is on the deed, but they’ve got to deal with the borrower to keep them in the house. These types of policies add liability coverage on all properties. There is a distinct difference between the two that’s worth noting.From an accounting standpoint, it is easier for everyone to go with monthly reporting. That way, there's not as much back and forth. Click To Tweet
That’s one thing that it took me a long time and a lot of conversations with you to understand the differences, which I thank you for. I’ve had this little question with the company that has serviced my loans in the past where I’ve had a contract for deeds. As a contract for deed, you want that investor policy with the liability in case somebody trips and falls and sues. You have that coverage and so forth. For me, it was a little bit of a learning curve from that perspective. Beth, from a pricing perspective, there are significant differences which I thought opposite between a lender-placed and investor-placed policy as well, correct?
That is correct. With the real estate investor policy, you will see the property premium is less. The reason for that is because the risk is less. When you are dealing with lender-placed insurance, that’s a higher risk because those are all distressed. You can put anything on that policy. The underwriting is a little bit more strict in the beginning, and the rates are higher because they don’t much about what’s going to be put on there. Whereas the real estate investor policy, the underwriters have a better idea of what type of properties the investor is putting on there. From the initial underwriting, they can see the pride of ownership, the neighborhoods that are being invested in, and the types of houses that the investor is typically investing in. The risk is less, so the pricing is less.
Between those two policies, you talk with investors pretty much a lot. What are some of the main questions that you see them asking you or some of the things you see people stumble upon or some of the errors that they make when they’re signing up for insurance or getting a policy?
The number one question I get, bar none, is, “Can I add my LLC? I have 25 different LLCs I use. Can I add them all to the master policy?” The answer is yes. You can add as many LLCs as additional named insured to a master real estate investor policy as you need to. Also, you can with the lender-placed policy as well. That is the number one question that I get.
One of the biggest errors I see people make besides the mixing up of the two different types of policies, I see people often say, “I need a lender-placed policy,” when they need a real estate investor policy. That’s a big error. Within that, when they get their policies, they want to cover properties incorrectly.
With a lender-placed policy, you will cover a property for the loan balance because you are the lender. You are only needing to cover what your interest in that property is, which would be the loan balance. If there’s a total loss, you will only get paid up to the amount of coverage that you put on it. If the loan balance is $40,000, you will receive $40,000 less your deductible. You won’t get full replacement costs.
On a real estate investor policy, investors think they need to cover it for the market value or what they paid for it. That’s a big error as well because what they need to be thinking about is what the replacement cost is, which is not the same as market value. Instead of thinking, “I need to put on the amount of coverage being what I paid for it or what the market is saying it’s worth.” They need to be looking at, “What is the replacement cost per square foot to rebuild or repair when you factor in labor and materials?” That’s another big mistake.
I know in a lot of places or in the policy, it will sometimes tell you there’s a minimum, whether it’s $90, $100, $120 per square foot based on a region or overall, an aggregate or if people want. That’s a perfect question. I’ve asked that question to you on my investor policy. It was $90 a square foot or whatever number it was. That’s what I would insure my policies for. For 1,000 square feet, I would insure it for $90,000.
The way I like to say it is if it should have been insured for $90,000 and you insured it $45,000, and there was $45,000 in damage, you get half because you only insured it for half its value. One other question I was going to ask because this gets asked a lot too is, on an insurance certificate, does it say the servicer or the lender or both as additional insured? I know people ask that question or I’ve heard that question asked a lot. Do you know what the proper language is that goes on in an actual certificate?
What we have seen is that the servicer has an insurance policy. That policy is in the servicers name. They would be the insured that they can put the investor on as an additional for that specific property but it would vary according to the servicer. There’s no set way to do that.
I want to give people a primer to some of the policies. Shante has been working behind the scenes with Beth and her team as well as with other investors to review a lot of the challenges investors face or a lot of the heartache with forced-place insurance. Especially as an investor, I was part of some of these conversations. Each servicer that I found or that I’ve used in the past has certain things I like, but they don’t have the full package. Shante, do you want to talk about a few of the things that you’ve been working on with Beth and her team?
Yes. First, I want to state that I have over eight years of experience working in the servicing space. Before Beth and I sat down talking about insurance policies, I had no idea that there were even two. That’s me coming from this space. It was a huge learning curve for me and you guys dealt with a lot of my questions, confusion and things that are stressing me out because I didn’t understand it. I did not realize that there were different types of policies that our clients, the people that we deal with daily, would potentially need.
I have investors who have conventional notes and mortgages where they would need a lender policy. I also have investors like Chris, who has a whole bunch of CFDs and investor policy fits him and his needs better than what it reaches his needs as opposed to a lender policy. I struggled to even know that there was a difference and then trying to wrap my head around why we would need both. What BIFI has been working with you guys on is making sure that we do have both policies here for our clients to be able to ensure their loans properly.
I didn’t even know about how much you want to ensure the property for. I’ve had lenders throw numbers and sometimes it’s the balance of a loan, what the property’s worth, or what they bought it for, not knowing the ins and outs and the details of why you need certain things and how they should be done. I struggled and that’s me being in this space for years. It’s been a lot of fun and a lot of learning, which I am happy to have to be able to relate to.
I don’t think a lot of lenders and investors, at least in our space, have any knowledge of this. They’re like, “My borrower doesn’t have homeowners’ insurance. I need a forced-place policy.” No one ever instructs them as to the proper policy, holds their hand, guides them and tells them, “This is what you need and this is how this works.” That’s why it’s been so much fun trying to understand and make sure that I am able to relay this back to our clients as well.
Our show ranges between 1,000 and 2,000 downloads. I would bet that if there were 1,000 people reading this, probably 995 are in the same boat as you that didn’t know there are two policies. I didn’t know there were two policies at that point in time either. It’s interesting that people are like, “Oh,” in trying to understand the two. One of the things that you both mentioned is on a lender-placed, what’s the value. I’m using a servicer who takes the value and automatically puts it into UPB and that is it. They don’t even want you using your policy or nothing.You can't do anything if it's under a lender policy and you foreclose on that property. Click To Tweet
I had a loan that got transferred to BIFI. I’m going to use round numbers. The UPB was $25,000 but the total payoff was roughly $50,000. The loan got transferred by BIFI. It was when I was on vacation in the Virgin Islands. I found out that the house had a fire. I then reached out. It was ensured through a policy from J.B. Lloyd. I send them. They did their thing and so forth. When I filled out the forms, I had it ensured for the payoff. Come to find out, the fire was two days before the actual loan transfer. It goes back to that other servicer.
I haven’t seen the report, whether it’s a total loss or whatever the case may be. Hypothetically, it was a total loss. I would get $25,000 versus the $50,000 because of the different policies and the different amounts to ensure. From my understanding, I can’t ensure it for $100,000 if they only owe me $50,000. If that total payoff is a significant number, it’s something you want to consider as an investor or at least have that option. In my mind and Shante with BIFI, you allow that option, correct?
It is. I’ve been working with Beth’s team to make sure that we have the proper information sent over to them whenever we place any lender under the lender policy. One of the requirements for that is how much to insure? There are two options for the loan balance. If we go to the UPB, that would automatically also update with the data that we sent or with the payoff. In your situation, there could be drastic differences between the two. We do have them both rocking and rolling.
Shante will answer first and then Beth can roll into the second half of this. If somebody has a loan where they assume the borrower doesn’t have insurance, they fill out some form that you would have said, “I want this under insurance and put a value on it.” From there, what’s the process to collect on those payments and make sure the borrower doesn’t have insurance? Shante, you can answer the first half whether or not it’s correct. Beth can probably answer that process of checking insurance and what has to happen next.
Any of our clients who are going to want any type of insurance policy has to complete an insurance request form that we have available for them. They do that per loan and they fill that out. We double-check and make sure it makes sense. I have to input that information into our system and export a report to send over to J.B. Lloyd to make sure that the insurance is placed properly. That’s how the request comes through for it to be placed. It does end up getting placed. Beth, I’ll let you take on the next part as to what you guys do after.
We’re getting reports from you guys, weekly or bi-weekly, which will give us the information on new loans that are being boarded and which ones have opted in the program. We’ve got two different processes here. We’ve got one that will go into the lender-placed bucket and then one that will go into the real estate investor bucket. We will be tracking to see which ones were forced placing on, which ones are going to be covered on the real estate investor, which loans are opting in or which investors are opting into that.
On the force-placed side, we take care of the letter-writing cycles as well. If we are force-placing coverage on a borrower, they’re getting the proper correspondence from BIFI. We’re doing it on behalf of BIFI. We’re letting them know that if we do not have proof of insurance coverage by X date, we will be placing coverage on them and it will cost this amount but it will not cover them. They then get another letter and there’s a final letter, which says, “The insurance has been placed. This is what it’s going to add to your loan.” This is all CFPB-compliant, which is important. I’m not convinced that all note investors do this and it’s important.
Here are my two cents. This could be wrong. If I have a policy, individually, my entity with an insurance provider, whether it’s J.B. Lloyd or a competitor, I place that with them and they cover it. From my understanding, what they don’t do is they’re not going to be sending out the letters or any of that component. That is up to me as the investor to hunt that information down. It’s a completely separate agreement of doing that management compared to ensuring. That’s correct, isn’t it?
Yes. When you take on the role of the lender, not only do you need to be responsible for covering your interest in the property should the insurance lapse, but you then need to be responsible for staying compliant with CFPB lender compliance regulations and that would be doing a letter cycle. Yes, that’s an important aspect that probably gets overlooked.
A question came up in the Facebook group, “I bought a note. When should I insure it?” I’ve always been told that you insure it the day you buy it. When you go through the compliance process, if they do have insurance, you let your insurer know and they essentially reimburse you. Is that a correct statement?
It is correct. I’m not a note investor. There are different ways to handle that when you first get the note. From checking all your boxes and due diligence standpoint, it is a good idea to cover it immediately. If they provide proof of insurance, let your provider know and they will reimburse you. That is the law and that is how it works. That’s a good way to do it from due diligence and checking all your boxes’ standpoint.
I do also want to piggyback quickly. When the letter cycles are done, at least coming back to the servicing side when that final letter goes out to the borrower, that’s when we as a servicer are allowed to add that insurance cost to the borrower loan to where they are responsible for paying that back. That’s added as a charge or an advance to each borrower’s loan when they fail to prove it and the insurance is solidified and placed.
A question I’ll ask Shante and Beth as well is, I’ve got $250,000. Let’s say I have $10 million in UPB. If I want to ensure everything at once, it would probably run me $100,000 upfront. I know certain insurance companies require everything upfront. Others can do it monthly. The program is going to be a monthly program that you can pay for so I don’t have to sell my kids toys to pay insurance on my loans.
We agree to go monthly for that specific reason. There are some lenders who have pools of notes that they’re going to need to be ensured. To pay annual premiums at one time for several different notes but only $250,000, that’s a pretty penny. We are billing each investor or lender monthly and that’s how we’ve received the bills from J.B. Lloyd as well.
If I understand this correctly, I fill out a form at the loan boarding and say, “I want to place this under FPI.” I wipe my hands clean. Shante and Beth, you take it from there.
Yes, that’s correct. We don’t want you writing your child’s college funds. Honestly, from an accounting standpoint, it is easier for everyone to go with the monthly reporting. That way, there’s not as much back and forth. There’s no hunting down refunds or sending refunds and all that stuff.
Also, borrowers find out that they’re being charged for insurance that doesn’t protect them. My team is also reminding them that this insurance policy doesn’t protect their assets in that property. Family heirlooms and stuff like that go up with the house if anything happens. A lot of borrowers tend to hear that and tend to go out and get their own homeowner’s insurance policy, which also makes things on a month-by-month basis a little bit easier as well. From an accounting standpoint, I don’t want my team having to do reimbursements all day long. I’m sure you guys don’t want to do that all day long. It also makes stuff like that a little bit easier for everybody involved.
When I started, I was on a program with a provider that was yearly. I put it under force-placed and then the loan paid off, the note sold, foreclosed. After month six, I’d have to get that reimbursed. I’d have to get a different policy and then get all that paperwork signed. At that time, I was like, “This is a pain in the you-know-what.”
One other question I did want to ask because you both touched upon it as well is if somebody had a loan, it foreclosed. I know an investor who had a lender-placed policy on a property that foreclosed. It was still with the servicer. It was a foreclosure but they left it there because they were going after a deficiency or whatever the case may be but there was an incident at the property.
I had nothing to do with anyone on this call. They had a fight. I don’t know if they ever got it claimed or insured because it didn’t fall under the lender-placed because it was a foreclosure and it got canceled. Sometimes you can get liability but they ensured it. It was like, “No. This is your property now and not a lender-placed.” I don’t think they were able to get their coverage.
Beth, it went back to that point that you made. The replacement value was $250,000. You only had it insured for $25,000. What you’re getting back is your deductible. It ended up being a little challenging. Long story short, Shante, if somebody has a property under a lender-placed policy and they foreclose and they still had it serviced at BIFI for some reason, can they switch it over to that investor policy?
They absolutely can. They’re going to almost be advised to unless they go and have their own policy separate but you can’t do anything if it’s under a lender policy and you foreclose on that property. They will be advised to make sure that they understand, “You have a lender policy right now. You’re foreclosing. Here’s the sale date. What is your plan after?” We offer this. By all means, it doesn’t change much. We’ll need a new dollar amount. It’s not too much legwork on the investor. Between myself, Beth, and everybody, we’ll get that switched over. We need a little bit of communication from our lenders when we ask.
The way I look at insurance is people try and read the policy but they don’t understand it until an incident occurs. The incident occurs and it’s the you-know-what moment of, “I should have read that a little closer.” I know there are some things with an occurrence base versus another type of policy and some other things. I don’t want to make it sound like insurance companies are out to get you because they’re not. It’s like any type of legal agreement. It’s a contract that certain things are covered and certain things aren’t. Are there certain things in there or things that you’ve seen people presume that are not the case? For example, flood insurance is everywhere or something along those lines.
There are many. You mentioned occurrence and so I’ll start there. There are two different types of language in the policy and they both regard two claims. One is an occurrence policy and one is a claims-made policy. If you have an occurrence policy, it will give you lifetime coverage for any incident that happens within that policy period, no matter when the claim is made.
For example, if you had an incident and you’ve got an insurance policy in place and it’s an occurrence policy and you find out about the incident two years after you changed carriers, that incident will still be covered on an occurrence policy. For claims-made, it would only cover the incidents during the policy period. Once that policy expired, changed, lapsed or whatever, you can no longer make a claim that it had happened during that policy period later. Outside that policy period, it’s not going to cover it.
The example I used previously, the incident happened two days before it switched insurance. If it was an occurrence policy, which I believe both are, I’m fine. If that was a claims-made policy, I would be up the creek.
If you have a claims-made policy and you purchase what’s called tail coverage, then it would still be covered. As you can imagine, a claims-made policy is less expensive than an insurance policy.
Do you see a lot of people doing the claims-made policy?
Not too many. Most people go with occurrence. The cost is not enough more to make it worth going with claims-made.Know the difference between basic form and special form insurance policies. Know what you're buying because they're very different. Click To Tweet
As a note investor, it’s probably wise for you to ask when you’re buying a note if it’s insured in any type of policy. When you do a BPO or put eyes on a property, that’s early on in your due diligence. There could be two weeks that pass before you close on that asset. A lot can happen in two weeks. For example, I was looking at a note in New Orleans. A lot can happen in two weeks’ time. Beth, you had frost down in Texas. I’m sure there’s probably a lot of claims down at that point in time.
It’s always good to ask the question. The answer you’re probably going to get from the person sending the note is, “I have no idea.” Out of the 1,000 people, 995 who are reading probably have heard this before but still haven’t registered it in their minds.
The other thing I like to point out is there are two main kinds of policies and general policy forms and the form is the contract. One is the basic form and one is the special form. Know the difference and know what you’re buying because they’re different. The basic form is only going to cover the basic perils. What is listed on the policy is what’s covered. Anything not listed is not covered.
A special form contract or an all-risk policy or broad form, it’s all the same. That is going to cover everything unless specifically excluded in writing. You want the special form in most cases. Know the difference, know what you’re getting and talk to your insurance provider about the pros and cons of each.
One thing I’ll mention is to know who your insurance provider is and make sure it’s a reputable company. Not somebody selling insurance out of the back of their car.
Also, somebody who knows the difference between basic and special.
For me, the cost difference that I see between a lot of these different types of policies and stuff is minimal. One major incident, whether you’re covered or not can pay for your insurance seven times over in many instances, it’s something to be aware of. Nobody likes to pay for insurance but I don’t recommend you go cheap on it either because it can cost you at the end of the day.
Have your people. Shante and I, in what we’re doing, are trying to take the burden of being an insurance expert off the investor’s plate. You guys had enough hats to wear to be experts. Hopefully, this will make it easier for a lot of people so that they don’t have to feel like they have to get their Master’s knowledge in insurance.
The other thing I like that will be handled by Shante and Beth as well is, can I have my own policy? I have a borrower who calls a servicer and says, “My roof is leaking. I want it covered.” The service is like, “This policy is under Chris’ company.” They then call me and then I’m like, “I’m not an insurance expert.” I have to call Misty or someone at Beth’s company and say, “What is this?”
A lot of times, the person hasn’t replaced their roof in 40 years and it’s not anything from a storm. They think that if their house gets old, insurance could come and fix it. When I tell them, “If it is damaged, by the way, you have a $5,000 deductible and the quote on the thing is only $3,000.” You’re out of luck from that standpoint. Shante, is that one less thing investors will have to deal with from that perspective?
Yes. That’s the best part about this. Investors, you guys are supposed to be investing. You’re supposed to be making money at this point. The point is to make sure that I partnered up with somebody who could assist BIFI in handling every investor’s needs. When it comes to insurance, I’ve been in the space. I didn’t have any knowledge of it. The whole point is for us to make this as easy and painless as possible. When your borrowers are calling and complaining, “We’re going to let you guys know but we’ll help you process through that claim.”
No one knows how to do these things. I’ve had many investors in the past who are like, “I don’t know what to do.” It’s a lot when you don’t know what you’re dealing with or how to report things or how to file a claim and things like that. That’s why we partner with Beth to make sure that we can handle that for you so that, Chris, you’re not sitting here calling every five seconds. Not every investor has the time either. As a service, our goal is to be a one-stop shop. Let us take that on for you.
You’ll even add the charge to the loan. I don’t have to send bills every month.
The bills will already be coming in. We will be adding a charge based on CFPB requirements and making sure the letter cycles are sent out. This has been laid out and gone through the fine-tooth comb. I’m sorry if it’s been painful, Beth. We’re finally at a point where I’m confident. In the beginning, I’m honest. You can ask Chris, I was like, “No. This is not going to work out. I don’t get it.” I’ve asked every question. I flipped it upside down and sideways.
There are things that you guys offer that I didn’t think you would offer. We’re going to offer to some of our clients too. If they want it, great, such as that lender tracking and things like that for their own separate policies or outside of BIFI. The goal is to make sure that you guys as investors or the investors as a whole can focus on investing. Focus on working on your loans and things like that. As long as there’s no incident, you don’t have to worry about it. It’s going on, and my job is to take care of it.
I appreciate what you guys are doing, the time that you invest with, Shante, figuring all this out, learning about it and asking questions. Honestly, you, me and Gina have developed. I have a lot of clients that are servicers as well as investors. This is different. This is more in-depth. It fits all the needs that you will have coming from your investors and it’s needed. I’m glad it’s limiting the exposures that are out there, which has been a concern to me in the past.
I’m glad you guys are also willing, too. A lot of the pushback is finding a group of people that are willing to work with you and hear what you need and then you guys let us know what you can and can’t do. There have been many times where I’m like, “This doesn’t make sense. Why would they need to do this? Why can’t we do it this way?” I would try to find different loopholes or something but once it all makes sense, what we’ve come up with is probably the best thing out there.
I agree. We did some insurance yoga there for a while. My poor carriers didn’t know what hit them.
From working with you, Beth, on my policy that I had at the time with the lender-placed investor policy, back in the day, we’re doing a lot of gymnastics at that point in time. Shante with BIFI, I was noting, “As an investor, here are some of the things that I want.” I know you’ve talked to other investors as well. It’s the simple things. I don’t have to send a monthly invoice every month. I get to pick how much is insured. I have the ability to move from a lender-placed to an investor-placed policy.
Sending the letters, it seems like there’s not one servicer that I’m aware of. It doesn’t mean that one doesn’t exist but I don’t know. I haven’t also used every servicer. It seems like I didn’t have that ability anywhere. Everyone would be like, “I can’t add this charge until I can see the three letters that have gone out for every loan.” “I want to insure it for the total payoff.” “No. We only do the UPB.” I’ve struggled because I’ve gotten tired of trying to fight with certain individuals and you give up. I have this incident that happened and it cost me. It’s like, “Two days.”
Luck wasn’t on my side.
I’m not laughing at you. I’m laughing at the irony.
Shante and Beth, there’s some deductible on every loan. If I had a loan at BIFI and there was an incident, even though it’s your policy, I’m still responsible for that deductible as well from that perspective.
Yes, you are. The one thing that all investors do need is some idea of what’s in this policy, what the deductible is and that information. I know people fly blind and I don’t think that’s the smartest because they don’t know. An incident happens and they’re like, “What?” Our goal is to be completely transparent upfront. There is no room for question. There is no room for error. You know what you’re dealing with as an investor. When an incident happens, you know that you’re covered and you know what your responsibilities are as well.
Since you mentioned that, the service I’ve used in the past and I’ve got force-placed under them. I’m like, “Can’t get a copy of your policy?” One of them sent it to me after a lot of arm twisting. The other one said, “No.” I’m like, “How do I know what’s covered? I’m paying you every month for that policy and I have no idea what’s covered.” I have loans. I have CFDs. I want to make sure I have liability coverage on this contract for deed. They’re like, “You got it. Don’t worry.” I’m like, “Can I see the policy?” They’re like, “No.”Know the difference, know what you're getting, and really talk to your insurance provider about the pros and cons of each policy. Click To Tweet
That’s what I brought it up with Beth’s team because these policies are not super fun to read, to be 100% honest. For me, I’m like, “I don’t know what I’m reading.” There are times I reread the same thing about ten times. I don’t see why anybody would not share a problem. You’re paying for it. I’m not paying for it. IT’s BIFI. It’s a service that we’re offering to you. At the end of the day, it’s coming out of your pocket. I think that you should have an idea of what is covered under this policy and how things will work. We’re here to guide you, but I don’t think hiding that from you is the smartest idea either.
Beth, your book club doesn’t have insurance on contract reading?
If they do, sign me up.
I’m working on it. I can’t imagine why anybody wouldn’t want to read an insurance policy. It’s fascinating stuff. Shante, if you think it’s necessary, we can always do calls with new investors and answer questions.
You’ll be sick of me soon. Investors are savvy. You guys are pretty smart. You’ll ask some questions I never thought of. There’ll be questions coming through. There are things that we haven’t thought of. I thought I’ve asked everything but no way. There’s definitely going to be a little bit more.
I always love it when I get new questions. That’s how I learn, too. One thing about the business I’m in, you never know it all. You are always learning. There’s always something to figure out.
I do have one question. I’m curious with this. You mentioned that a lender policy could have liability and you have an investor policy. Why would somebody add liability on a lender policy versus switching it over to an investment policy? It’s because the investor policy cheaper. Why would you do lender with liability?
On lender-placed policies, you can add liability but it has to go into foreclosure. We have to list it as a foreclosure. With the real estate investor policy, it’s on everything. When the investor is strictly a lender, they’ve got a note and they haven’t done the contract for deed, that needs to be on the lender-placed policy. That’s the appropriate coverage, once they have gone into the CFD world.
They got foreclosed and kept it, once they take ownership.
Also, are on the deed. When they’ve done the CFD, it needs to go on the real estate investor policy. It’s changed. They’ve done the exposure there being on the deed or when they become a landlord or when they take ownership of the property for whatever reason. They need liability coverage. That’s when it needs to go into the other bucket.
You stated that under a lender policy, a lender can add liability and that’s when the loan is in an active foreclosure and not foreclosed on, correct?
Right. As soon as they’re not making their payments and you’ve decided to foreclose, then it can be moved over to the foreclosure.
As of the sale date, they should be moving it to the investor policy, the foreclosure.
Why would I, as a lender, even care about having liability because I’m just a lender?
You wouldn’t unless you were on the deed. Ben, the borrower, even if they don’t have the coverage, they still retain the exposure.
My other question is if you have a policy and then you realize it’s vacant, do you have to do any special notification for insurance coverage or is it assumed that a property’s vacant under one policy and the next? Is there any type of reporting requirements involved if you know a property is vacant? The risk would go up on a vacant property for a loss. I was curious, do you know if there’s any type of notification or is it policy-specific that it’s one of those things that you read your policy.
We like to know if it’s occupied or vacant. That would come to us via reports. However, it’s not going to change the rate structure and there are no vacancy limitations on either policy. Sometimes things happen where the investors don’t know or we don’t know. Somebody vacated the property and we don’t hear about it for a month. We like to know but it’s not going to change the rate structure or the coverage.
On lender-placed policies I’ve seen in the past, if you’re closer to water, your rates are higher in Florida as well.
On our policies, there is a step for Florida. Florida and Gulf states will have a separate rate. There’s a rate for all of Florida and then there’s going to be a rate for the Gulf states. It’s tiered that way. Florida being the highest because it gets the majority of the wind claims in the country. More claims are paid out in Florida than in any other state.
Are there any states that you exclude, Beth and Shante?You never know it all. You are always learning. There's always something to figure out. Click To Tweet
Any final thoughts or things that you’d like to add before we wrap up this episode?
When we’re talking about insurance, call BIFI and ask. We’re here to help you. If we don’t know, we’re going to call Beth and we’re going to get you an answer. That’s always my biggest leave-everybody-off-at. You don’t know until you ask. We’re here to help. We’ve created a pretty good partnership where we can answer all your questions.
I’m thankful to the two of you for putting a program like this together. With Shante, I’ll mention I have invested in BIFI personally and so forth. I have been pushing you to try and make certain tasks much easier on the investor and insurance was one of those tasks. I don’t want to be an insurance agent. I’m sorry, Beth. It’s not something I have an ambition for.
If it’s something that allows me to focus more time on other important aspects of my portfolio and the insurance component, especially administrative tasks of making sure it’s insured, sending out the letters, and so forth. Knowing that’s being taken care of by a company that does it for a living and not the guy out of the back of his truck, it’s good knowing that it’s in good hands with someone like you, Beth and Shante.
That is all I have for this episode of the Good Deeds Note Investing Podcast. As always, make sure to leave us a review on your favorite listening station. Shante and Beth, thank you very much for joining us. As always, everyone, go out and do some good deeds.
About Shante Duffy
I assist with the supervision of day-to-day company operations, provide lender consultation services, assist with note servicing, handling of insurance services, and promotes note servicing & investment services at national conferences.
Experienced Business Development Manager with a demonstrated history of working in the financial services industry. Skilled in Microsoft Excel, Management, Customer Service, Microsoft Word, and Data Entry. Strong administrative professional.
About Beth Boisseau-Coots
Over 15 years of experience in sales, management, and marketing in the property and casualty insurance industry. Specializing in insurance coverages for financial institutions, mortgage servicers & lenders, real estate investors, and the multi-family housing industry. Coverages & programs include: Financial Institution Bonds, Directors & Officers Liability, Employment Practices Liability, Fiduciary Liability, Lender Liability, Professional Liability, E&O, Cyber Liability, Property, General Liability, Auto, Umbrella, Lender Placed Insurance, Full Outsourced Insurance Tracking, and Real Estate Investor Insurance Programs.
Having earned my Certified Insurance Counselor (CIC) designation, I hold Property & Casualty and Life, Accident & Health licenses in multiple states, including TX, CA, WA, CO, OK, OR, FL, GA, and PA.
J.B. Lloyd & Associates is endorsed by the Texas Bankers Association for it’s insurance programs for lenders, and is an active member of the Western Bankers Association.