SPOOKY TALES

"I've called a dozen insurers," my client said, "and NO ONE will agree to insure the property!" (You're not the first I've heard this from.)

Whether its water intrusion, overhanging trees, wood-shake roofs, knob & tube wiring, advanced age, or any of 101 excuses the insurance companies have put on their 'hit list," the latest hurdle with respect to Real Estate ISN'T the fact that we're facing the highest interest rates in nearly 25 years, it's the inability to insure properties once in contract.

If you're under the impression that the current insurer will be only too happy to continue to insure a home they already cover (That would make good sense, wouldn't it?), you'd be sadly mistaken . . . 

Insurance companies use the opportunity of a sale to remove the property from their books, and it's a frightening problem, to say the very least.

Under the argument that insurance companies have suffered catastrophic losses in California due to fires, earthquakes, floods, etc. (let's call it global warming), many insurance companies are now pulling up stakes and refusing to write on residential real estate altogether in our neck of the woods - ESPECIALLY if you live in the woods. (I have friends who are now paying $20k a year to cover their house off Skyline Blvd. and they've never made a claim.)

BTW, if you make the mistake of believing that a "claim" applies only to insurance payouts, you'd be wrong. EVEN IF YOU WERE DENIED, if you picked up the phone or got online with a representative to discuss your desire to be reimbursed for legitimate damage or repairs, that counts as a "claim," and both you and your property are going to be dinged on the C.L.U.E. Report.

What's a C.L.U.E. Report?

Think of it as the equivalent of the CarFax Vehicle History Report. C.L.U.E. stands for “comprehensive loss underwriting exchange.” C.L.U.E. reports disclose the detailed claims history for a person or a property. If you are buying a house, you can easily uncover the insurance claims history of the property by requesting a C.L.U.E. report from the owner. The catch is that the homeowner must order the report themselves (As the Buyer, you can't do it, nor can your Agent).

(To request a C.L.U.E, report of your own home or auto history, click here.)

It's important to note that unlike used cars, wherein the previous owners' claims don't count against the new owner with respect to their premiums going forward, the exact opposite is true with real property. ANY claim against the property stays on its record for up to seven years, whether it's yours or not, whether it's been resolved or not, whether the resolution has improved the property or not . . . . Moreover, if the Homeowner's insurance was canceled or was NOT renewed for ANY reason, this will likely put the property into the "high-risk" category immediately. (I'm betting there are misdemeanors that stay on a person's criminal record for less time.)

What's to be done?

Not much. Evidently, the Insurance Commissioner is considering allowing insurance companies to increase their rates in an effort to lure these same companies back to our fair state, but I imagine the upshot is that we will ALL be paying more for home insurance from here on out as companies are allowed to substantially increase their rates. Unfortunately, we're at the mercy of BIG insurance as anyone holding a mortgage must also carry property insurance as a lender requirement. (Fair enough.)

What's the moral of the story?

Having written fast and loose for the last several years in order to be competitive, anyone writing a non-contingent offer now - without a promise of insurance as part of their due diligence - should truly think twice. And as I recently discovered, a quote for property insurance isn't the same as an insurance binder. If the Broker discovers a claim against the property, they'll pull that quote just as quickly as they issued it. So make sure you understand the implications when waiving your contingencies. If you can't get insurance, you'll have little recourse.

This is where working with an Insurance Broker, as opposed to an online Internet company makes sense, if for no other reason than a savvy Insurance Agent will head you off at the pass when you pick up the phone . . .

"Are you sure you want to make that claim? I wouldn't recommend it."

No, it's not the reassuring words you want to hear from your Insurance Agent (Isn't the point of insurance to be covered when accidents happen?), but at least it won't hang you out to dry come time to sell.

Could this stuff get any spookier? (It probably will.) Happy Halloween.

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