What is Forced Place Insurance (FPI)? | Real Estate Notes Show

Episode: What is FPI Forced Place Insurance with Beth Boisseau, Erin Quinn, Gretchan Francis Dave's Goals and Plans: - Excited about this webinar because he doesn't know much about forced placed insurance - Wants to nail down questions and focus on what investors should be doing - Seeking changes that will help business and avoid getting stuck in problematic situations Key Recommendations: - Borrowers should maintain their own insurance to avoid more expensive lender-placed insurance - Note investors should consider special form coverage for fix-and-flips or larger reinvestment projects - When property transitions from lender-placed to REO, add liability insurance coverage - Ensure replacement cost value (RCV) is set high enough to avoid coinsurance penalties - Match insurance value to property reconstruction cost, not market value Topics Discussed: - Forced placed insurance definition and when it's required - Standalone policies vs.

master policies for lender-placed insurance - Basic form vs. special form coverage types - Replacement cost value (RCV) vs. actual cash value (ACV) - Coinsurance penalties and how they impact claims - Transitioning from lender-placed to REO insurance - Coverage considerations for note investors Guest Insights: - Gretchen Francis (Procter Financial): Lender-placed insurance can be purchased as standalone or master policy; master policies offer easier administration with per diem premiums - Beth Boisseau (Jamie Lloyd): RCV costs higher premiums but provides larger claim settlements; ACV costs less but leaves investor to self-insure the difference - Erin Quinn (Attorney): Created custom addendums to help avoid losses in foreclosure and bankruptcy processes we are recording this webinar to make sure we sees what's going on and catch the replay if you have any questions this also there's a chat box in the bottom of your screen with that chat box you can send me or Shantae a message we will be monitoring everything in there and if you have any questions for the guest we will provide their information later in the video so without do shut hey once you introduce everybody hello everybody thank you for joining us on this lovely Monday evening my name is John Kay Duffy and I work with Madison management services on servicing company based out of now Reno Nevada in there for about six years now and I'm excited to talk to you guys all about horse race insurance with the rest of the clip so welcome next we have Erin Quinn Quinn I'm based in Clearwater Florida I'm an attorney specialized in representing creditors in their foreclosure and bankruptcy endeavors since 2002 first as a legal assistant and as an attorney I got my Georgia license three years ago and now represent creditors in Georgia as well I opened my small law office with my partner and mentor of 17 years Robert Bowen about a year ago today so that's pretty exciting we're we're moving right along and we've got some good help here as well so that's kind of I guess all this you really need to know I the reason I guess for my involvement here tonight is mainly to answer any legal questions you guys have with respect to potential claims and then also Dave invited me to explain some different addendums that I've been able to create for some of the documents and the sales that he's had to avoid any loss in the same process then we have death neither I'm Beth boy so Koontz I'm with Jamie Lloyd and associates and we're an insurance broker who specializes in financial institution lenders and whole state investors so we've worked with quite a number of investors we work all over the country and we represent a number of different carriers that Dave invited me to be on here to answer coverage questions I know there's a lot of them a lot of confusion about the different types of coverage and policies about what coinsurance is so I'm really looking forward to fielding some of the questions last now these Gretchen hi my name is Gretchen Francis I'm with Procter financial or a lender placed insurance provider based out of Troy Michigan I've been in the insurance industry in nearly 10 years prior to that I was with a local lender and I recently obtained my certified insurance counselor license and I'm happy to be here tonight wonderful as before I'm Dave put some jkp holdings I'm excited about this webinar this is a topic that I don't know a lot about which is awesome and I may say get started as we talked before is this force play / Linear's place insurance and it's something that we all probably use and all should use as well as all don't have a clue what it all means or what it does just complain later how it doesn't work for us so what we're looking at here tonight is really to nail down some of the questions we have to really focus on what we should be doing and maybe some changes that will help our business and so we don't get stuck in situations we shouldn't be in so just to start off with a late Gretchen if you can share a little more about force-placed insurance based insurance and what sort of buying a policy sure okay so Linda place insurance or force-placed insurance is an insurance policy that a lender would buy when a borrower does not fulfill their agreement to maintain property insurance on a property so typically the lending document states that the borrower has made a certain maintain a certain level of insurance it dictates that the insured amount the type of coverage whether you meet flood or just property insurance and of course when the borrower doesn't maintain that insurance then the lender is forced to buy what would be a replacement coverage otherwise called lender placed insurance often it is more expensive so it does behoove the borrower to keep their own insurance in place but when that's not you know when that doesn't occur then lender placed insurance becomes necessary so you can buy lender place insurance in a couple of different ways you can purchase it either as a standalone policy so if you're a lender that maybe only has one or two borrowers that don't maintain their own insurance then you can buy it as a standalone policy or if you have multiple properties within your lending portfolio that need coverage you can buy a master policy which is very um it offers a lot of ease of administration for um for clients because they can add and remove properties for coverage at any time and they would only pay a per diem per diem premium so let's say they add a property today and then the borrower comes in and gifts their own policy then the lender can go ahead and cancel that awesome I do think that a lot of people want to know can most these policy be cover to REO which we'll get into can most these policies be converted from a Leonard place to an REO if something goes up through foreclosure auction they can um some of our clients it's a very streamlined transition so some of our clients they they do transition from lender place right to REO there would be a date of you know that it would occur so we would keep track of what days that would transfer from lender place over to REO typically when it turns over to REO you're going to want to buy liability insurance with that property coverage typically lenders don't buy liability coverage when it's just lender place but when it turns over to REO they would certainly want to buy that liability coverage but I know we talked briefly about some different forms right there's before I didn't know but this is a basic and a special form Pete give us what that means in layman's terms so a basic form is going to cover only what is listed on the policy typically it is the five basic parallels a policy can be endorsed for more but it is only what is listed is going to be covered special form or an all risk form is going to cover everything except what is listed as an exclusion obviously the coverage on a special form is going to be much more broad because again everything is covered unless is specifically excluded there's something cific that you would any can examples you can give of what someone's done on a special form or a basic form of what do we typically use as Leonard note investors um well it depends so note investors sometimes if they're only wanting you know real basic they want to cover their interest in the property maybe what they bought the asset for and they're not real consists principally a basic form and it's going to cover up the five basic perils plus usually it's endorsed for theft and vandalism that would be an example of lender or investor wanting to go with the basic form then there was other times where an investor will want to go with a special form and that's often like if they're doing a lot of Reinholds or if they're doing fix and flips and they just they need a little bit more broad coverage because their if their investment is a little larger and they're willing to pay a little more for that okay um this got me into little issue recently Gretchen can you share what are CV and a CV is in what the difference isn't how's that in fact impact or investment knowledge or experience you got you know us insurance folks we love to have acronyms for everything and we can just you know just kind of you know spit them off the top of our tongue and nobody knows what we're talking about so our CV means replacement cost value so replacement cost would be exactly that the cost that would take to literally rebuild a house or a property nail by nail brick by brick that's the replacement cost if anyone out there has ever built a home you know how expensive it can be to rebuild a to build a home let alone rebuild a home it replacement cost value is often much more expensive than a market value for example you could often go and buy a home cheaper than you could rebuild a home for um a CV would be actual cash value another insurance term and that's that is the depreciated value of the home so think of it like let's say a roof you put a new roof on your house that cost $20,000 and it's supposed to last 20 years well every year it would depreciate approximately $1000 so if you have a loss on your roof and you're getting paid a CD or actual cash value they're going to look at the cost of the roof 25 thousand dollars the number of years you've had the roof so if you've had it five years they're going to depreciate that roof by five thousand dollars and give you the remainder which would let's see let's say fifteen thousand dollars now you unfortunately that means you're going to have to come up with the difference because you can't go and tell your roofer well I only got fifteen thousand dollars on my insurance claim so can you give me a fifteen thousand dollar roof they're going to say well no a new roof costs $20,000 mm-hmm so a CV is a depreciated value now when you're insuring a home or a property you can insure for either value well you can insure for either value unless you the lender would stipulate what type of coverage you would need um replacement cost is a higher value if there's a loss you're going to get a Eyre return so your claim payment is going to be a higher value a cv is going to be a much lower value now keep in mind you don't want to mistake either of these with market value market value is a completely separate value and that has to do with the value of the home that you could buy or sell the home for it has nothing to do with insurance okay so no Beth we talked about this in a deal with we're dealing with that Ohio how is affect no buyers when they have maybe they listed it wrong or thank you know the pro and con obviously sometimes is benefit to do the cash value yeah you know the repair replaced value and sometimes not can you share how that may affect any claim it's the one files well okay so to break that up into two parts the a CV the pros would be that you're paying a lesser premium con would be you get a lesser settlement at the time of claim placement cost you pay a higher premium but the benefit would be at the time of claim you get a larger settlement it's really all goes back to an investor's risk tolerance and how much they want to self-insure how much they're comfortable self-insuring so that would be I guess the the answer to the first part of your question in terms of you know which would be the better option I mean again it kind of goes back to those pros and cons and it depends on you know the appetite of the investor you don't put it high enough what could happen if we have a hundred-mile house and we put a value 80 grant what could happen well a coinsurance penalty could kick in so what's a coinsurance pounding so coinsurance very misunderstood term that is the insured is required to purchase a specified amount of insurance based on so it'll be a percentage of the replacement cost so it's typically eighteen ninety or a hundred percent so for example if the replacement cost us a hundred thousand and the coinsurance Clause specified that the insured must have at least eighty percent of that they would need to be insuring that property for a minimum of eighty thousand dollars and there are thousands based on buildable the ACB or RCA that would be based on our safe and the replacement cost and which varies there's a valuation tool insurers use to come up with a specific number with my carriers I kind of have a feel for what their sweet spot is so I can advise on that but it's it is not an exact science but it does cost to rebuild per square foot most people they're typically based their liability on what the UPP is sometimes or how much money you have the deal and if you do one of those two and then not high enough you cut out a problem your claim depends on the type of policy you have if you have a DP one you want mean it's a form we forms in this industry and so all insurance agreements are contracts and the contracts are there called forms the different types of insurance contracts so dp1 is one type of form which that one allows the investor to insure their property for what they have invested in it without any coinsurance penalty the coverage is not as good but you know there is coverage in place and they're not paying as high a premium because they're not insuring for the full replacement cost that cp3 would allow the insure they insured to cover it for replacement cost but if they did not then there would be the coinsurance penalty that would kick in at the time of a claim so you know I don't want to get too far in the weeds with that here but it is important when a real estate investor is shopping for coverage to walk through the types of forms and what that means to them you know how they cover the property if there's coinsurance what the deductible is and if it's a special form or the basic form so it sounds to me so shows me Gretchen that we make that choice as an investor or what kind of form we want as long as we know we're looking for correct right and there's there's me also there's not only different forms but there's different names for the same form so some insurance companies might call it a name peril form some might call it an all risk form if you have a good insurance agent they're going to be able to explain it to you but if you don't you know we don't expect our clients to know insurance that's why we're here so if you don't know what it means or what a term means just ask and and keep asking questions until you understand don t do we have a choice from Madison's point of view when we get insurance through a servicer actually has an umbrella policy through Gretchen you and your team Proctor and these are things that I'm gonna be honest today I had no idea so I promise you I will find out no choice right now though but it's whatever Madison's setup but now I have some thinking to do to make sure that we have something that works for all you guys as investors in your favor I don't want to give you guys anything bad so drew just quickly ask you a question I'd say yes if you underestimate the value the property you can lose out in the claim because you're not high enough so we definitely had them elaborate Laurent up and want to get some other questions but yes you can get penalized I Gretchen I thought 90 days question there so it's not that the investor gets penalized if that they get paid for the amount of coverage that they purchased because you could look at it the opposite way the majority of claims are paid in the very low dollar amount so let's say it's $100,000 house the majority of claims are not complete loss claims they're often paid in the lower you know the lower value under $10,000 let's say and so if you're paying if you're not paying for the entire value of the home then you're paying less premium than you should really be paying and so in that instance it's the insurance company that's kind of getting penalized on the premium so the insurance company wants you to pay the premium for the property and then they will pay the full claim of course when a claim occurs so it's not that insurance companies are trying to penalize in the course of a claim they're just trying to get the appropriate the appropriate premium for the appropriate claims that are expected to be paid out Roger actually does bring up a good point about contracts for deeds which are coming back in full force my dismay and my life but you know in a CFD situation you guys are technically the owners of record of the property and liability insurance is very important in that situation so you would normally get a lender's policy if you're going to go to the traditional note and mortgage route and you're just going to be a lien on that property rather than the actual owner getting an insurance policy from a lender placed basis as opposed to an owner basis is important but if you're doing those contracts for Deeds agreement for deeds making sure that you're getting that liability coverage as an owner of record is important too but dog bite somebody on that property and you have a CFD you're responsible and you're and you're gonna have the tough time in court you know trying to prove otherwise when you are the actual owner and record on that property kimbob I see a question we did today a little while we definitely it's one of our things we're definitely talked about so the next part of buying a policy is this claims-made versa Kearns I posted about my facebook group I've been frustrated with it I've gotten screwed by it Aran's well person is now having many talks Bethel let you kind of start off with this what does claims made generally speaking and what's occurring to him what do we typically how they affect us well if it is in the current policy then if let's say you have a roots and it needs to be replaced and let's say it happened prior to the current policy it happened when you had a different policy you can still you can go back so that because its current and you can make a claim on the old policy it was those policy you mean someone else's policy you can file claim when there's you cannot file a claim somebody else can so if you let's say you buy this asset from John Doe and you realize after the fact that there was a roof claim if John Doe who had the policy prior to you purchasing the asset he could file a claim on his policy but you could not because you would not be named insured I'm glad with a claims-made policy it has to happen within the policy period of that insurance contract and what happens if you do find out it didn't happen you happen before you bought it can you do anything about that it claims made no sure that's a big one it is a very big one and I'm really you know what Aaron's doing with putting some herbage and the contract is helpful but it really comes down to do as much due diligence that you can when purchasing these assets because if you purchase one and there's a hole in the roof and you know disaster everywhere and you didn't know it that's you know you can't file that on the new policy that you got when you purchase that asset legally about that you've tried putting together to kind of do our best to help protect us so after there are many a minute of conversation with Beth on the difference between and trying to understand the differences between and what they're what basically the ramifications would be for you taking on a policy you know obviously your best practice is going to be to find out what type of insurance policy is on the property at that time so if the borrower soul keeps their insurance awesome if they haven't and there is an FBI policy a fourth-place insurance policy on the property then it's in your best interest to figure out what type of policy that is and the reason being is because it could it could determine whether or not you buy the asset at all because if it is you know the type of policy where it terminates upon the sale to the new investor and then you find out that there's a roof you know a roof there's roof damage that occurred before you purchase the asset that's a that's a big deal a roof is a big deal so making sure that you're aware of what type of policy is there is important and so what I did for dave has just tried to structure a addendum to his purchase and sale agreements that allows him to attempt to obtain those disclosures prior to the purchases alone during the due diligence process we all know that that doesn't always happen sometimes it's a blanket policy it just depends on the situation and what the what the seller is willing to give so you know in addition to the disclosure of the type of policy I also suggested and that in that addendum that any known damage to the property be disclosed through through property inspection so obviously you guys are going to do kind of your own inspections which hopefully my husband might have something ready for you guys thrown and you know just to kind of mitigate those potential losses with respect to unpermitted structures on the back of the house or you know roof damage etc so in the event that there is damage to the property that the lender the seller knew or should have known about before selling you the loan and now you are unable to make that claim they have to make you hold for that either they have to pay out the costs of the damage or potentially they have to buy back the loan and then also it gives the buyer the ability to waive the requirements of that so if you decide you know what yeah it's got a roof leak but the properties were so much money that I'm willing to keep it then you you have that that ability that webinar get a hold you afterwards and actually get you to pass along a diamond for feet yes of course yes awesome and then the last thing is just seller cooperation and making sure that you know the seller is not like yeah I'll totally help you with that after it's over and then you know you get to the point where you have a claim and that you have you know you're looking for a reimbursement and I believe it was Beth was saying how sometimes the that's gonna go back to the seller instead of to you as the buyer because the seller was the one that had the policy so in those instances making sure that that reimbursement gets back to you as the new owner of the property that addendum just kind of put some teeth into it to force them to try to turn over that money when it's time so that you can you know do the necessary repairs to the property so that's kind of a disability pal OTT of time but I do have the addendum and then you know thank you so much the next one is like when we actually have a claim and we have the file one we're scared no no do step one is freaked out or what definitely what would you say your first step is is the best or when you find out hide it don't tell anyone hope that goes away certainly when you discover a claim or a potential claim you you want to and you're required to report it as soon as possible actually in the policy there's certain conditions that you have to meet one is to prevent further damage from the home so if that means you know the homes on fire guess what you got to call the fire department you got to notify somebody you have to try to minimize damage in some respects if there's some you know a hole in the roof you should try to get somebody out there not necessarily to repair it but to cover the hole so that further water damage doesn't occur so you do have to try to minimize damage and then report it as quickly as possible when you report it you're going to kind of have a good idea or somewhat of an idea of what happened whether it was a tree that fell in the home kitchens fire a burst pipe so when you make the claim you're you're going to kind of give an idea okay you know I got water in my house or there's a tree that fell in the house but it's really up to an adjuster to come out and inspect the properties to determine the true of law and then also they would determine what type how much coverage that you would have what you don't want to do is make repairs final repairs until somebody sent out to look at the property and document the damage because let's say you have a kitchen fire and let's say you work in construction and you just start fixing it and then a month later you go to your insurance and you say well I had a kitchen fire and I've already fixed it and now I want you to pay me for it they're gonna say well we don't see any damage so you want an adjuster to come out as quickly as possible typically when you contact I know with us with our claims department when you contact us and you file a claim we we have independent adjusters around the country so we would send out our independent adjusters who would be at your location typically with it it's within 72 hours so it's within a very short period of time and then once the damage is documented then you can you know you can kind of start doing some repairs but at least we've documented what the damage was awesome sontee what you experienced when investors calling you up freaking out it's definitely intimidating um we actually don't file the claims for the investors we actually put them in contact with Proctor directly and I haven't heard any complaints I just kind of tell them hey you know everyone's been pretty awesome an idea of them I never had to file a claim on anything so I don't understand the entire process sarch finish and you know how it works and physically being in those shoes but I know you can or we've run into some hiccups and some things what happens when you file a claim while a loan is in foreclosure and Aaron I'm going to ask you that well I think it depends to a certain extent it's going to depend on the state so judicial state for instance in Florida what will usually happen if the property is destroyed during the course of the foreclosure as the foreclosure will continue but the borrower and the towards resolution of the insurance claim usually in conjunction if it's a horse police policy then obviously it's going to end up being the lender that does that what usually occurs in those situations is that once the amount of damage is agreed upon or once the lender accepts let's just say they said you know the insurance company comes back and says yeah it's only a $50,000 loss so I'm going to give you fifty thousand you know you as the lender might say well wait a second like you know it's a it you know decreasing the value by seventy five thousand or it's a thousand dollar problem so you have kind of a disconnect as to what the insurance company will actually pay and that instance it can go depending on the actual contract the actual insurance contract it can go to either arbitration or mediation it can be the subject of a separate suits we're in the foreclosure kind of stays on hold while that happens and it is very situational in the sense that you as the länder might proceed with a foreclosure claim for instance if it's a complete filing and we're just getting service of process rolling versus the sale is in two weeks and now you have a property that's deteriorated in value and you're potentially not going to have as good of you know fitting competition on the property so usually what happens is once the check is issued aside from just the normal who's gonna sign etc it gets placed in escrow or in suspense until those proceeds are determined how they're going to be handled so most mortgage contracts especially the Fannie Mae Freddie Mac forms actually allow the lender to make a determination on whether they are going to allow the borrower to actually restore the condition of the home or if the home is too far gone then that that amount would be placed towards the Dead itself and basically as a partial payoff of the debt of the property and that's at the lenders discretion so there's not a question for or you know to be answered about CFD be different and they're really not playing out significantly in at least Florida because they're treated as mortgages here right now in Georgia for instance under the security deed you have generally those same same situations happening so again it's really just gonna depend you know what what are the what are the terms of your insurance effect making sure that the servicer places that in suspense or an escrow until they receive some type of authorization on how to handle that those funds and then whether those are built out directly to the contractor or paid to the borrower to repair the home or to pay down the principal balance and given to the lender awesome so if the borrower is not occupying the loan we can't contact can we file suit in court and just get in the house and do other prayers would that cause any problems in the foreclosure process you actually you don't have a sue in order to conduct repairs on the property in your and this is again going to be a situationally dependent on the contracts itself in a note in mortgage again using the Fannie Mae Freddie Mac forms it's going to actually indicate in those forms that you as the lender have the right to protect that collateral so in filing insurance claims if that means you know force for repairing a property if that means bringing the property up to code if that means you know shutting off the water because of a flood whatever that is you have if the if the borrower is not cooperating you have right to go in there to do that to protect your collateral interest in the property so as a secured as a secured transaction for you guys it's actually kind of a best-case scenario because you have the ability to protect your investment just like the borrower does again there are some notice provisions around that again they're all in the contract for the most part at least in my states in Florida and Georgia everything is very contractually based and the contract will tell you exactly what you can or can't do and just to add to that if it's in foreclosure there would be a difference if it's the borrower that has maintained their insurance coverage or if it's actually in force place coverage if it's in force place coverage the claim proceeds are going to go directly to the lender in the lenders name so they're going to have full access and availability of those funds to make any repairs if it happens to be that the borrower still has their insurance which I don't know if they're in foreclosure I don't know why they would still maintain their insurance but perhaps their insurance policy is still enforce then a claim check would come in the name of the borrower as well as the mortgagee and that that could be a little more difficult for the lender to then disperse those funds because they're going to have to get the check they're gonna have to have the borrower sign the check then they're gonna have to manage those proceeds and then it becomes a question of who's going to do the repairs do we trust the borrower to do the repairs they're in foreclosure or does the bank or the lender then take over she doesn't add that to it in the judicial states for sure that's a simple motion to compel the signature of the borrower's on the insurance proceeds check if they're not willing to sign it the bank in most situations is allowed to those funds in suspense you know pending each milestone of the repair of the property and so for the most that's a simple motion there and in a non-judicial state it's obviously going to be a little more difficult because generally you have to file suit instead of non-judicial routes but I think that for the most part you can get those done very quickly through especially in an emergency situation where you have a deterioration of the property can I add one thing here I don't think that we addressed this earlier and I just want to point out to those who are on this podcast there is a slight difference between a forced place slash foreclosed policy and a real estate investor policy they're very similar but there is a difference so when we talk about this you know I saw some questions in chat and and I'm hearing you know what we're addressing right now is traditional tourist place policy which if you have that policy and the post status changes from a borrower lapse of insurance to a foreclosure situation you have to go into foreclosure you simply go online you change the status of the property and then liability is added because you don't need liability if you're only forcing that liability exposure is still on the borrower but a real estate investor policies while very very similar to a force-placed policy typically covers it adds liability across the board because as a real estate investor usually in nine out of ten cases there is a liability exposure so I wanted to make that very important distinction so that you know again people can go into this when they're shopping for insurance more informed know that they're very similar that there is a difference so that's one wants to ask you about you know when you file a claim the money comes in can I hold it till I foreclose on it so 11 doing repairs I don't what the homeowner living in some great house and I just prepared today I hold that money till the end well one of our favorite sayings is in insurance is it depends it depends on the policy or a bit in policy and some of my carriers have verbage in there that states you have replacement cost settlement but if you wait 180 days you go past that before doing repairs that settlement changes from a replacement cost settlement to an actual cash value settlement everybody actual cash value settlement means you take replacement cost deduct depreciation and that is your settlement less the deductible and any coinsurance so obviously that could really impact the settlement so it's real important to know your policy and know if that there's a stipulation like that so to your question it depends it depends on the policy you can but just know it may impact the final settlement settlement I grant is question multiple times satis FBI the FBI letters I know that somewhere Kenny's asked his question and I asked this question there are there certain letters and timeframes that if we're gonna file sent out a stored FBI policy and somebody is there policies that conceded in law I'm trying to beat underbrush here that we have to put in place in at timeframes Gretchen that we have to file them and when to file them when we could file them when we could charge the lender for those things a little bit of bad yes there is a series of letters that is required to be sent by u.s.

mail to the borrower within a specified period of time the first notification has to be sent when you know that there's a lapse of preferred insurance so when you become aware that there's insurance that have you know that the borrower has not maintained you're required to send a letter to the borrower to notify them then 30 days later you have to send essentially the same letter if you haven't gotten insurance proof of insurance from the borrower and then 15 days after that that you can send the third letter which would be the bind notification basically saying that you have now force-placed coverage so those series of three letters have to be sent within 45 days and then you can proceed with force placing and charging the borrower now if the borrower comes up with their rope with their preferred insurance with their own insurance and they say oh I just ignored your letters until you actually charge me money but looky here I have my insurance and it's been in place the entire time you can do with a flat cancel of that insurance and that would cancel the insurance backdated and cancel it and it would cancel any premium that was due so we could put insurance in place we just can't charge them - the letters are written up that correct correct that's correct and most lender place providers do have that kind of built in if there's an online system they have a built into their online system if they have a billing method they have a built into their failing method for example we can do up to 60 days retroactive filling and probably back you know you guys do that or whoever you know whatever carriers you're working with can do that because we know that lenders have a need for insurance right now even though they can't necessarily pay for it right now they need that period of time to send out the notification and I know Beth you shared these layers with me is this something we can share with the group here that we can add on to our email fault email tomorrow yeah we can kind of give it Cheryl a letter what they get to give out in timeframes this is something you can get over to me I can send you the CFPB models letter forms awesome you can share them to add on to what Gretchen said in terms of Aflac doing of splat cancel just you know I know this sounds pretty common sense but just note that you as the lender will can't just take their word for it you need to see an actual proof that they had the insurance before you flat cancel and then your insurer also has to have that before they will that cancels so just again I know presents agree require just the DEF page for that the declarations page or do you want a full copy of the policy pages plenty yeah just to side things then we're against some of the other questions here the weave right to mold and fungus issues in the past and I've been typically told mold and fungus doesn't isn't covered at all and typically the problem is there circumstances where mold fungus can be covered due to a result of what happened yes good that's good what would you say is a scenario that mold will be covered if the mold is a result of something that is a covered peril under the policy so if your tree falls through the roof there and it's caused again a lot of this is going to be dependent if you haven't taken the proper care and then the mold is depent comes from that but you as the insured did not follow the protocol as outlined in the policy - you know secure the property and therefore mold resulted that would not be covered but if that type of thing comes from a covered peril then it would be covered this also includes flood insurance this is letters place insurance cover flood insurance at all Gretchen what insurance is typically purchased separate from property insurance and when I say property insurance I mean hazard insurance not every property requires flood insurance there are certain properties that are in the high-risk flood zone that lenders do require flood insurance but certainly not every property so flood is available you can force place it but it's typically a separate policy let's say and actually sometimes we do run into instances where our borrower has maintained their homeowners insurance but they just haven't maintained their flood insurance or maybe the flood zones changes there's remapped and so maybe the flood zone changes and they were previously not required to purchase flood insurance but now they are and they're not aware of it so then sometimes horseplay flood needs to be purchased ok so we can get first place flood and that's something obviously we go through you guys to figure out if we do or don't need it doctor it's probably similar but we can add that anytime it's the stairs national flood rates and then it's seamless on online reporting system you just add you know you have a drop-down and you select flood with easy process yeah and flood rates are typically standard across the board depending on the type of property the flood zone there's not a lot of underwriting that goes into flood rate so don't bother shopping around for better flood rates because they're all pretty standard rate cool so I actually have a question about what insurance that I think is relevant here and I know that on my house although I'm in a non flood zone I actually maintain flood insurance at the tune of like three hundred and sixty dollars a year or something and you know it was recommended to me because there are certain things that are not covered by hazard that you would think would because are covered by hazard that end up being under like more of a flood risk for instance like broken pipes or something like that is it something that you guys you know for the minimal cost that it is in a forced play situation would you recommend that they keep flood insurance even outside of a flood zone for any particular reason well first of all broken pipes are not blood but I know you were just saying that like as an example of a potential flood yeah so everybody's in a flood zone it's just a matter of if you're in a high-risk flood zone or a low-risk plug them so everybody is then it has some zone attached to their property and it's only the high-risk ones that require a flood insurance by lenders if you're in a low risk zone that does not require flood insurance then it is very cheap because it's obviously very low risk so yes I think it's absolutely worth the extra $300 or so it cost you per year I would personally on my own home do the same thing but yeah there are a lot of people in Houston about two years ago that wished that they had done that all that were completely devastated by Hurricane Harvey were not in flood zones and yet their properties flooded and so it was bad situation quickly we have a question from Drew he would like to know if we need private adjusters to guide and protect us as lenders or can we count on our insurance engines to help us get the coverage that urgent you know that's a great question every insurance company operates differently some insurance companies have their own image uh stirs I know I previously had a homeowner's policy with State Farm as far as I know State Farm has their own adjusters meaning they're sending their own people out to adjust the property now you can see how that could be a conflict of interest why would they be looking to pay more you know more money on a claim they would actually probably be looking to pay less with Proctor we use independent adjusters and our adjusters that we use is a network of independent adjusters they are not affiliated with us whatsoever they're actually paid a percentage of claimable damage that they find so they're incentive to find more damage because then they get paid more I don't you know I can't speak for everyone insurance company but there are there is a difference when it comes to adjuster so you could ask your your carrier or your insurance agent are these independent adjusters or are they affiliated with the insurance company it's good to know what do lenders need to do or are required to do when a loan turns into an REO and we have to change that insurance policy though what are the steps that us as lenders have to take if there are any commas in a suppose a I just need to switched what papers online you just simply go and change the status from first place to foreclosed exchange so you can and then you're gonna want it I don't know if you have a separate step path or not but you would want to make sure you add liability at that point yeah ours is automatically added even with all carriers across the board we have one online system so anytime that status would change that wouldn't be automatically added but she's right if you are working you know you'd want to check with your carrier to make sure that the liability was added so we talked before about inspections and sort that can you guys give me some things of inspections and checklist of things that investors should do to come up is there a generic checklist that we can get ahold of that we can go down to a check check check check and what is you should be looking at profound claim what could be claimable and all iconic a checklist we can use in terms of like what's covered what's not covered I guess something we don't know what we can file claim on we can't fathom on right is there a overall checklist like yep check the air conditioning up checked it free to check the floors I don't know of one but other than the insurance policy itself obviously that's a cumbersome checklist that nobody really wants to go through but it does have all those items I don't know of one separate question do you know of a an independent checklist that you know but I want to say it if in doubt if you're wondering if a potential damage could be claimed I would say just claim it because there it doesn't cost anything to file a claim and if there's you know if there's you know a potential loss that could be covered you know let us come out let us look at it and if it covered them then you're going to get paid for it but if it's not then okay you know there was no law to do the claim no very long yeah yeah so but when it comes to a checklist I've actually file you know doing a claim really I mean I don't have one but when you I know when you call our claims department for example they certainly have their checklist they say okay I need you to do this I need to do that I'm going to send send an adjuster out within so many days that adjust you know then we're going to send you a file I know with our lender clients we have all of our claims information online so they can look at adjusters reports they can see if there's any forms that need to be signed or returned typically we need a proof of loss signed before we release funds so really I think it's just a matter of following you know the whoever you're working with in the claims department so it did see a question that I'm gonna bring up one thing I'm gonna just quickly Rob's the question we sit offline if we're gonna file claim we should make it broad as possible don't say is flood in the basement they say there's flood damage and keep that broad I mean we talked it offline to kind of keep it broad as possible to do a catch-all so I was reminded one that that was a competition we had offline last week too when you do file something try being is broader than you can be just so they covered everything if we file claims what happens were premiums we get in to make or accents are encouraged earns goes up we fought to me cleans our house our health insurance goes up if we're investors we have a bunch of properties we start filing claims Robin's our premiums well not only claims you file is how many claims are actually paid out though if you file ten claims and we come and say no you know that's wear and tear the roof wasn't damaged it just you know the 20 year old roof you just need to repair your roof and there's no actual claim payment then that would not increase your rate now if you have multiple claims where insurance proceeds are paid out then certainly at renewal that would increase your rate so one of the other things that came up was there was conversation regarding a new in AIC model that came out we thought all flying by this earlier I'm Gretchen you mentioned you are learning a little about it and we didn't want to talk too much about it because you're saying is not law can you share a little bit about that real quick anymore sure so you're speaking about the fourth-placed model act that has been I would say going through a process for several years now and really what they're trying to do is just kind of come up with have a basic stand or lender placed insurance because there really hasn't been so we're following it I know Proctor has responded we put in our you know our view on what we would like to see but I don't know that that is law yet and really I think it's kind of been kicking around since like 2012 so it's been it's been a while but something to follow but I wouldn't I wouldn't hold your breath that's we have a lot of second inspire than us Paul here as well how is it different from first and second and what should seconds do and you know how they handle things somebody came to find out the insurance policies on the first or not in general what a second investor should be doing for insurance policies really not a whole lot different than those in the first position because even if you're in the second position you have the obligation to protect your interest in that asset I would say that in a case like this you know you would go through kind of the same process the you would need the first physician person or the borrower to give you proof of insurance you would need the ability to place coverage if they either won't comply with the insurance requirements or won't give you the proof that they have it the only difference would be that the amount of insurance that you would purchase on that asset would be determined or could be determined by the fact that you're in the second position so in that case it would be an important conversation to have with your agent say hey you know I've got this is my position you know what do you suggest and they can go over with you what the options are you know with the various forms that we talked about earlier the different coverages etc Gretchen anything you want to add to second investors and those who maybe can't find out the home or HUD insurance or they do and approve the first house insurance in place what that process is and how to handle it how to file yeah what level claim do you file or insurance policy mouth yeah seconds are tricky um typically there's an assumption that if there's a second there's probably a first and somebody who owns the first is probably and you don't tracking the insurance or ordering the fourth-place coverage so typically there's less risk on second mortgages when we we actually do outsource tracking for some of our clients and we don't even we typically don't even track seconds we track the first um and you can blink it the second but you can buy a blanket policy to cover your seconds now you know that only becomes you know you're gonna you're gonna want to have a portfolio of seconds not just one you know but if you have a portfolio of second mortgages you could easily blanket those and just not even worry about them so I'm definitely gonna start opening up this discussion to more general questions for those who are out there who may have a question so feel free searching them over Santana I will be combining these questions and do our best what we do ask is that if you have a question about Pacific's duration that's not general that we asked you to reach out to the investor or to the insurance and attendees here and bring that question directly to them so into the chat box in the webinar that you can just rush them generally out there and we'll go from there I know that when when things are going on insurance world there's a lot of questions regarding how to handle things you know them to the borrower and whatnot have you guys come across something that was just unique or some of the experience you've had with investors that you can say hey watch out for this or here's a gotcha they you've experienced Beth of you experience something with investors or a general question to come up that we haven't covered yet oh my goodness you know I have one I don't know if anybody out there has experienced homeowners association liens and how they can supersede first mortgages even in certain states that's something to watch out for you know and it that's another thing that's evolving over time where these homeowners associations are really they're just getting tired of not being paid their their monthly dues and so they're starting you know many of the states I think there's 22 super lien states they now have laws protecting these homeowners associations so you definitely want to be careful of that if you become aware of an HOA mean you're going to want to resolve that as quickly as possible a lot of times the homeowners associations will work with you so if there's a lien for let's say $10,000 because the borrower hasn't yeah you know hasn't paid their HOA dues for some time a lot of times the HOA will work with you so they'll reduce it down to seven thousand if you pay it up you know pay it in full so but you definitely do want to get those results because it will turn into a foreclosure and in many states even the first mortgage can be you know expunged awesome that's listen gushers don't even think about insurance when they're buying a note generally how difficult is it to to convert over to it I know you have an online system that's awesome where we can file things how difficult is it for us to start that process and cumbersome and didn't do all the weeds of it how difficult is from your system and your experience with new investors to get that get that set up and get it working I don't think it's difficult at all I mean the process is an application and then you know basically a report gives us an idea of the properties and where they're located and the amount of insurance that is required for each one once we have that we're able to get some quotes and once we agreed on terms then we get the system set up there's a blanket coverage in place between finding and getting the online system going then I typically will add put in you know input the first the properties that are covered at inception and then so schedule a time with the investor to walk through the system they can look at the properties that have been added make sure that there are no issues and you know get trained on the system at the same time so it's a pretty straightforward process earlier I don't know I don't think we touched on it she was asked if there are any statutes like specific states regarding force based insurance there's no is there you know we have investors who sometimes don't have the insurance information written out and the borrower's at no your contract so there's nothing that states anything about insurance and the borrower maintaining it is there some sort of common law protection for lenders to use or to obtain force-placed insurance there's all kinds of regulations regarding force-placed insurance and I think a lot of that can be found CFPB and there's not a state-by-state case though yeah but I think what what the question was if it's not written in the mortgage document and I don't know if it's not written and it's not a requirement of the mortgage document I don't know that there would be anything to protect the lender it me I don't I don't know I'm not an attorney I don't know but I I don't think if that if that loan document doesn't say that they can and that they have to maintain insurance and they and that the lender has the right to force play said I that lender might be out of luck yeah this kind of goes back to the thing we were talking about earlier as investors it's real important to do the due diligence find out find out what is in the contract the you know original loan agreements but you know find out what that wording is have somebody like Aaron look over it you know another set of eyes that knows what they're looking for I'm sure there are some state regulations I you know in Florida where we're very homeowner like protective and which is a while a lot you know like OJ Simpson was you know like your home set residents and and you're like inalienable rights to your property are not like significantly regulated in the state specifically in Georgia I don't know that I've ever had the issue happen I could you know definitely look it up and see but I think that's probably more of a case-by-case basis and definitely state-by-state basis like you're gonna you're gonna have to there is no one answer for your entire portfolio if you're you know doing these things nationwide what you can have is potential limits on the amount of FBI potentially like the premiums specifically themselves I know that one of the biggest defenses in Florida that people raise when there is FBI on a property is the fact that the borrower could have gotten you know that insurance coverage or you know a third of the price of what the lender place and policy is and you know there's arguments and defenses to that for sure but making sure that that that that policy is in place and protecting the asset is I think it's more of a it's it's a it's a personal risk assessment and just like life insurance or you know they mandate car insurance but that's more from a personal injury perspective more so than in a public policy perspective more than you know protecting the asset at a home it's different you don't have homes driving down the street running into people so I think that's kind of more where that comes from you know from the man the mandating part of it so I don't know that property insurance is necessarily mandated at the state level as much as it is by the lenders trying to protect their financial investment so with a five question during seconds the care desks if we don't have any insurance information can one find out if the property's insured and if so how do we add our name to that policy you know I had heard rumblings years ago that LexisNexis was working on coming up with some sort of a database that would hold that information so that you could find out let's say if your neighbor had insurance and if you were injured on their property you could find out you know who ensured that property but as of right now I do not know of any central database where you could find out a property if insurance exists on a property and even if you did know if insurance existed on a property unless you're the owner of that insurance policy you cannot add your name to the policy now you could if you're the lender on that property and you know who the insurance is through you could contact the agent let's say a State Farm you could contact them and say I'm the mortgage I'm the mortgagee I need to add a mortgagee clause and they will do that there's also this is kind of like in the backdoor but a couple ways that you can find out in a performing situation when the note is performing generally speaking the borrower's gonna be cooperative with you so if you buy a performing seconds and you call them and say hey I'm from your new lender in your second mortgage I just interested if you haven't sure can you send me your deck page they're going to do it it's the non-performing people are the people that are not complying with our obligations that you're going to have the problem with a lot of you guys get first pay ups like what is the first mortgage payoff is their escrow included in that payoff if there is escrow in that payoff that's been advanced by the lender I can almost guarantee you there's a blender put lender place policy on it there's an escrow balance sometimes there will be somebody that will give you that information they may not give you the carrier information but they may say you know yes it is escrow for taxes and insurance and we dispersed them on you know we dispersed them recently or something like that so your relationships are very important especially between each other you know as far as you know first and seconds you just got to be careful not to get into the nitty-gritty and run amuck of you know the the borrower protections for their financial information so but those are kind of a few good places to look to see whether or not that that property is actually protected so Chantelle let you answer a Patti's question regarding if there's an escrow account for the borrower did not force place insurance what clients do you need to buy for the borrower I don't think I'm understanding that questions if you have an escrow account does that escrow account include hey it's because that's go is it mixed between taxes and insurance so I think I know what they're asking so and there is an escrow account there are some laws I think it's CFPB or somebody I don't maybe it was maybe it's a Fannie regulation that says if there's an escrow account you have to do everything that's possible to maintain the preferred insurance on that property so let's say their escrow account is a dollar short but you need to pay the interest the preferred insurance you go ahead and pay it now as a lender or a mortgage you're not responsible for going out and buying them a preferred policy they're responsible for keeping their own homeowners policy or preferred insurance policy if they happen to not have enough in escrow then you can not pay that preferred policy and then send them to lender place you can't do that but but your but you have no requirement whatsoever to go out and get them a preferred policy that's their responsibility yeah I tell all investors that I have that question that comes up at Madison that I speak to is that you are requested right you are required to maintain their insurance if there's a shortage in escrow you'll get an email from my ask for department directly letting you know there's a shortage of course we're going after the borrower's Wells hey barb you're short but she's right you can't let that insurance lapse and cancel and then pay for space insurance and force that as well so the FOB question was is that even for a CFD safety from my understanding and this is a question I get a lot that I don't know be answer to from my understanding it's hard for borrowers to go to State Farm let's say and obtain their own insurance policy because they're not the deed owner yet he's gonna look like car titles so you don't get the deed to the property until you it'll run in full so these contracts a lot of insurance companies from what I've been dealing with aren't accepting and then the lenders are going out and obtaining insurance and putting the bars as an additional insert we have a program though it's underwritten to our Lloyds facility that it's a a lot of our investors use this that are doing the contract for deeds in a no credit check anybody can get it full-out homeowner's policy that they can get for their contract for deed borrowers and the cut-in there in the borrower's names okay so that does exist in the premiums higher the is higher but it is a policy that would be in their name kind of policy that different from a typical forced place or regular homeowners policy it originated during the boom anybody to get a mortgage on the stated stated income only we've been dusting off hey how do you have any additional questions follow-up questions let us know so drew I think your question regards more of a liability about underground tank where FBI doesn't typically handle that that's more of a liability question our real question which you could definitely ask directly flying to either one of them these both handle different concerns policies where Beth is more of a brokerage but you can go directly to Gretchen as well insurance as well we are we are getting towards the end of this awesome conversation you know it get a view more additional question we definitely will take a few more but I wanted to before we sort of wrap up too much make sure that we share information if you want to add your your contact information in the chat box so through you that whatever best fits you I could definitely share an email wrists in up probably tomorrow what to copy the video as well but I am I'm very grateful for you guys to be joining me tonight a Monday evening and share information it I had very little knowledge of I'm gonna probably be watching this or listening this a few times just so I think notes to make sure my process is in place and do some things that are on the Box Dave but I would appreciate just because there were some people that fell off if he would shoot it out absolutely raju is my fault email tomorrow when i extend out the copy of the video from you admire your youtube channel which we have a ton of videos there as well is your all your information so they meet people to reach out go from there I'm amazed by this this field of insurance and I'm kind of worried Tenney's you don't need to share your email addresses or whatnot it's more for you guys to reach out to the families and so they can give it their ambition to you let me again make sure we get Aaron what states you currently can cover foreclosures and handle things like that and can you write a Denman's to any policies or any contract that we're dealing with Florida and Georgia are the two states that I currently work in so I think when I said to you on yours is that I Roden it based on what Florida and Georgia law allow for but the event you were attaching it to you like a California thing like that but we need to seek specific counsel from that area to make sure that it's not running amuck of any of their specific laws or that it's impossible in that state so I'm happy to do that in either Florida and Georgia and I also am licensed federally in those states too so I do actually foreclosure and bankruptcy their title work it's really boring but I do it well ladies I gratefully appreciated your time it's amazing you surrounded by smart people that I can learn from reach out to if you have any additional questions again you can go through medicine to get your pulse if you choose to or you can reach out right to the Beth or to Gretchen and get through insurance policy for them I know that Beth is online portal you can kick things off very easily and Gretchen do all she'd reach out directly a lot of knowledge about the space and be sure to repeat listen to us put on fast-forward and get the parts you need to take notes on no it's already I've taken on this so ladies I appreciate your time thank you again thank you ladies have a great evening Thank You like bye-bye we are recording this webinar to make sure we sees what's going on and catch the replay if you have any questions this also there's a chat box in the bottom of your screen with that chat box you can send me or Shantae a message we will be monitoring everything in there and if you have any questions for the guest we will provide their information later in the video so without do shut hey once you introduce everybody hello everybody thank you for joining us on this lovely Monday evening my name is John Kay Duffy and I work with Madison management services on servicing company based out of now Reno Nevada in there for about six years now and I'm excited to talk to you guys all about horse race insurance with the rest of the clip so welcome next we have Erin Quinn Quinn I'm based in Clearwater Florida I'm an attorney specialized in representing creditors in their foreclosure and bankruptcy endeavors since 2002 first as a legal assistant and as an attorney I got my Georgia license three years ago and now represent creditors in Georgia as well I opened my small law office with my partner and mentor of 17 years Robert Bowen about a year ago today so that's pretty exciting we're we're moving right along and we've got some good help here as well so that's kind of I guess all this you really need to know I the reason I guess for my involvement here tonight is mainly to answer any legal questions you guys have with respect to potential claims and then also Dave invited me to explain some different addendums that I've been able to create for some of the documents and the sales that he's had to avoid any loss in the same process then we have death neither I'm Beth boy so Koontz I'm with Jamie Lloyd and associates and we're an insurance broker who specializes in financial institution lenders and whole state investors so we've worked with quite a number of investors we work all over the country and we represent a number of different carriers that Dave invited me to be on here to answer coverage questions I know there's a lot of them a lot of confusion about the different types of coverage and policies about what coinsurance is so I'm really looking forward to fielding some of the questions last now these Gretchen hi my name is Gretchen Francis I'm with Procter financial or a lender placed insurance provider based out of Troy Michigan I've been in the insurance industry in nearly 10 years prior to that I was with a local lender and I recently obtained my certified insurance counselor license and I'm happy to be here tonight wonderful as before I'm Dave put some jkp holdings I'm excited about this webinar this is a topic that I don't know a lot about which is awesome and I may say get started as we talked before is this force play / Linear's place insurance and it's something that we all probably use and all should use as well as all don't have a clue what it all means or what it does just complain later how it doesn't work for us so what we're looking at here tonight is really to nail down some of the questions we have to really focus on what we should be doing and maybe some changes that will help our business and so we don't get stuck in situations we shouldn't be in so just to start off with a late Gretchen if you can share a little more about force-placed insurance based insurance and what sort of buying a policy sure okay so Linda place insurance or force-placed insurance is an insurance policy that a lender would buy when a borrower does not fulfill their agreement to maintain property insurance on a property so typically the lending document states that the borrower has made a certain maintain a certain level of insurance it dictates that the insured amount the type of coverage whether you meet flood or just property insurance and of course when the borrower doesn't maintain that insurance then the lender is forced to buy what would be a replacement coverage otherwise called lender placed insurance often it is more expensive so it does behoove the borrower to keep their own insurance in place but when that's not you know when that doesn't occur then lender placed insurance becomes necessary so you can buy lender place insurance in a couple of different ways you can purchase it either as a standalone policy so if you're a lender that maybe only has one or two borrowers that don't maintain their own insurance then you can buy it as a standalone policy or if you have multiple properties within your lending portfolio that need coverage you can buy a master policy which is very um it offers a lot of ease of administration for um for clients because they can add and remove properties for coverage at any time and they would only pay a per diem per diem premium so let's say they add a property today and then the borrower comes in and gifts their own policy then the lender can go ahead and cancel that awesome I do think that a lot of people want to know can most these policy be cover to REO which we'll get into can most these policies be converted from a Leonard place to an REO if something goes up through foreclosure auction they can um some of our clients it's a very streamlined transition so some of our clients they they do transition from lender place right to REO there would be a date of you know that it would occur so we would keep track of what days that would transfer from lender place over to REO typically when it turns over to REO you're going to want to buy liability insurance with that property coverage typically lenders don't buy liability coverage when it's just lender place but when it turns over to REO they would certainly want to buy that liability coverage but I know we talked briefly about some different forms right there's before I didn't know but this is a basic and a special form Pete give us what that means in layman's terms so a basic form is going to cover only what is listed on the policy typically it is the five basic parallels a policy can be endorsed for more but it is only what is listed is going to be covered special form or an all risk form is going to cover everything except what is listed as an exclusion obviously the coverage on a special form is going to be much more broad because again everything is covered unless is specifically excluded there's something cific that you would any can examples you can give of what someone's done on a special form or a basic form of what do we typically use as Leonard note investors um well it depends so note investors sometimes if they're only wanting you know real basic they want to cover their interest in the property maybe what they bought the asset for and they're not real consists principally a basic form and it's going to cover up the five basic perils plus usually it's endorsed for theft and vandalism that would be an example of lender or investor wanting to go with the basic form then there was other times where an investor will want to go with a special form and that's often like if they're doing a lot of Reinholds or if they're doing fix and flips and they just they need a little bit more broad coverage because their if their investment is a little larger and they're willing to pay a little more for that okay um this got me into little issue recently Gretchen can you share what are CV and a CV is in what the difference isn't how's that in fact impact or investment knowledge or experience you got you know us insurance folks we love to have acronyms for everything and we can just you know just kind of you know spit them off the top of our tongue and nobody knows what we're talking about so our CV means replacement cost value so replacement cost would be exactly that the cost that would take to literally rebuild a house or a property nail by nail brick by brick that's the replacement cost if anyone out there has ever built a home you know how expensive it can be to rebuild a to build a home let alone rebuild a home it replacement cost value is often much more expensive than a market value for example you could often go and buy a home cheaper than you could rebuild a home for um a CV would be actual cash value another insurance term and that's that is the depreciated value of the home so think of it like let's say a roof you put a new roof on your house that cost $20,000 and it's supposed to last 20 years well every year it would depreciate approximately $1000 so if you have a loss on your roof and you're getting paid a CD or actual cash value they're going to look at the cost of the roof 25 thousand dollars the number of years you've had the roof so if you've had it five years they're going to depreciate that roof by five thousand dollars and give you the remainder which would let's see let's say fifteen thousand dollars now you unfortunately that means you're going to have to come up with the difference because you can't go and tell your roofer well I only got fifteen thousand dollars on my insurance claim so can you give me a fifteen thousand dollar roof they're going to say well no a new roof costs $20,000 mm-hmm so a CV is a depreciated value now when you're insuring a home or a property you can insure for either value well you can insure for either value unless you the lender would stipulate what type of coverage you would need um replacement cost is a higher value if there's a loss you're going to get a Eyre return so your claim payment is going to be a higher value a cv is going to be a much lower value now keep in mind you don't want to mistake either of these with market value market value is a completely separate value and that has to do with the value of the home that you could buy or sell the home for it has nothing to do with insurance okay so no Beth we talked about this in a deal with we're dealing with that Ohio how is affect no buyers when they have maybe they listed it wrong or thank you know the pro and con obviously sometimes is benefit to do the cash value yeah you know the repair replaced value and sometimes not can you share how that may affect any claim it's the one files well okay so to break that up into two parts the a CV the pros would be that you're paying a lesser premium con would be you get a lesser settlement at the time of claim placement cost you pay a higher premium but the benefit would be at the time of claim you get a larger settlement it's really all goes back to an investor's risk tolerance and how much they want to self-insure how much they're comfortable self-insuring so that would be I guess the the answer to the first part of your question in terms of you know which would be the better option I mean again it kind of goes back to those pros and cons and it depends on you know the appetite of the investor you don't put it high enough what could happen if we have a hundred-mile house and we put a value 80 grant what could happen well a coinsurance penalty could kick in so what's a coinsurance pounding so coinsurance very misunderstood term that is the insured is required to purchase a specified amount of insurance based on so it'll be a percentage of the replacement cost so it's typically eighteen ninety or a hundred percent so for example if the replacement cost us a hundred thousand and the coinsurance Clause specified that the insured must have at least eighty percent of that they would need to be insuring that property for a minimum of eighty thousand dollars and there are thousands based on buildable the ACB or RCA that would be based on our safe and the replacement cost and which varies there's a valuation tool insurers use to come up with a specific number with my carriers I kind of have a feel for what their sweet spot is so I can advise on that but it's it is not an exact science but it does cost to rebuild per square foot most people they're typically based their liability on what the UPP is sometimes or how much money you have the deal and if you do one of those two and then not high enough you cut out a problem your claim depends on the type of policy you have if you have a DP one you want mean it's a form we forms in this industry and so all insurance agreements are contracts and the contracts are there called forms the different types of insurance contracts so dp1 is one type of form which that one allows the investor to insure their property for what they have invested in it without any coinsurance penalty the coverage is not as good but you know there is coverage in place and they're not paying as high a premium because they're not insuring for the full replacement cost that cp3 would allow the insure they insured to cover it for replacement cost but if they did not then there would be the coinsurance penalty that would kick in at the time of a claim so you know I don't want to get too far in the weeds with that here but it is important when a real estate investor is shopping for coverage to walk through the types of forms and what that means to them you know how they cover the property if there's coinsurance what the deductible is and if it's a special form or the basic form so it sounds to me so shows me Gretchen that we make that choice as an investor or what kind of form we want as long as we know we're looking for correct right and there's there's me also there's not only different forms but there's different names for the same form so some insurance companies might call it a name peril form some might call it an all risk form if you have a good insurance agent they're going to be able to explain it to you but if you don't you know we don't expect our clients to know insurance that's why we're here so if you don't know what it means or what a term means just ask and and keep asking questions until you understand don t do we have a choice from Madison's point of view when we get insurance through a servicer actually has an umbrella policy through Gretchen you and your team Proctor and these are things that I'm gonna be honest today I had no idea so I promise you I will find out no choice right now though but it's whatever Madison's setup but now I have some thinking to do to make sure that we have something that works for all you guys as investors in your favor I don't want to give you guys anything bad so drew just quickly ask you a question I'd say yes if you underestimate the value the property you can lose out in the claim because you're not high enough so we definitely had them elaborate Laurent up and want to get some other questions but yes you can get penalized I Gretchen I thought 90 days question there so it's not that the investor gets penalized if that they get paid for the amount of coverage that they purchased because you could look at it the opposite way the majority of claims are paid in the very low dollar amount so let's say it's $100,000 house the majority of claims are not complete loss claims they're often paid in the lower you know the lower value under $10,000 let's say and so if you're paying if you're not paying for the entire value of the home then you're paying less premium than you should really be paying and so in that instance it's the insurance company that's kind of getting penalized on the premium so the insurance company wants you to pay the premium for the property and then they will pay the full claim of course when a claim occurs so it's not that insurance companies are trying to penalize in the course of a claim they're just trying to get the appropriate the appropriate premium for the appropriate claims that are expected to be paid out Roger actually does bring up a good point about contracts for deeds which are coming back in full force my dismay and my life but you know in a CFD situation you guys are technically the owners of record of the property and liability insurance is very important in that situation so you would normally get a lender's policy if you're going to go to the traditional note and mortgage route and you're just going to be a lien on that property rather than the actual owner getting an insurance policy from a lender placed basis as opposed to an owner basis is important but if you're doing those contracts for Deeds agreement for deeds making sure that you're getting that liability coverage as an owner of record is important too but dog bite somebody on that property and you have a CFD you're responsible and you're and you're gonna have the tough time in court you know trying to prove otherwise when you are the actual owner and record on that property kimbob I see a question we did today a little while we definitely it's one of our things we're definitely talked about so the next part of buying a policy is this claims-made versa Kearns I posted about my facebook group I've been frustrated with it I've gotten screwed by it Aran's well person is now having many talks Bethel let you kind of start off with this what does claims made generally speaking and what's occurring to him what do we typically how they affect us well if it is in the current policy then if let's say you have a roots and it needs to be replaced and let's say it happened prior to the current policy it happened when you had a different policy you can still you can go back so that because its current and you can make a claim on the old policy it was those policy you mean someone else's policy you can file claim when there's you cannot file a claim somebody else can so if you let's say you buy this asset from John Doe and you realize after the fact that there was a roof claim if John Doe who had the policy prior to you purchasing the asset he could file a claim on his policy but you could not because you would not be named insured I'm glad with a claims-made policy it has to happen within the policy period of that insurance contract and what happens if you do find out it didn't happen you happen before you bought it can you do anything about that it claims made no sure that's a big one it is a very big one and I'm really you know what Aaron's doing with putting some herbage and the contract is helpful but it really comes down to do as much due diligence that you can when purchasing these assets because if you purchase one and there's a hole in the roof and you know disaster everywhere and you didn't know it that's you know you can't file that on the new policy that you got when you purchase that asset legally about that you've tried putting together to kind of do our best to help protect us so after there are many a minute of conversation with Beth on the difference between and trying to understand the differences between and what they're what basically the ramifications would be for you taking on a policy you know obviously your best practice is going to be to find out what type of insurance policy is on the property at that time so if the borrower soul keeps their insurance awesome if they haven't and there is an FBI policy a fourth-place insurance policy on the property then it's in your best interest to figure out what type of policy that is and the reason being is because it could it could determine whether or not you buy the asset at all because if it is you know the type of policy where it terminates upon the sale to the new investor and then you find out that there's a roof you know a roof there's roof damage that occurred before you purchase the asset that's a that's a big deal a roof is a big deal so making sure that you're aware of what type of policy is there is important and so what I did for dave has just tried to structure a addendum to his purchase and sale agreements that allows him to attempt to obtain those disclosures prior to the purchases alone during the due diligence process we all know that that doesn't always happen sometimes it's a blanket policy it just depends on the situation and what the what the seller is willing to give so you know in addition to the disclosure of the type of policy I also suggested and that in that addendum that any known damage to the property be disclosed through through property inspection so obviously you guys are going to do kind of your own inspections which hopefully my husband might have something ready for you guys thrown and you know just to kind of mitigate those potential losses with respect to unpermitted structures on the back of the house or you know roof damage etc so in the event that there is damage to the property that the lender the seller knew or should have known about before selling you the loan and now you are unable to make that claim they have to make you hold for that either they have to pay out the costs of the damage or potentially they have to buy back the loan and then also it gives the buyer the ability to waive the requirements of that so if you decide you know what yeah it's got a roof leak but the properties were so much money that I'm willing to keep it then you you have that that ability that webinar get a hold you afterwards and actually get you to pass along a diamond for feet yes of course yes awesome and then the last thing is just seller cooperation and making sure that you know the seller is not like yeah I'll totally help you with that after it's over and then you know you get to the point where you have a claim and that you have you know you're looking for a reimbursement and I believe it was Beth was saying how sometimes the that's gonna go back to the seller instead of to you as the buyer because the seller was the one that had the policy so in those instances making sure that that reimbursement gets back to you as the new owner of the property that addendum just kind of put some teeth into it to force them to try to turn over that money when it's time so that you can you know do the necessary repairs to the property so that's kind of a disability pal OTT of time but I do have the addendum and then you know thank you so much the next one is like when we actually have a claim and we have the file one we're scared no no do step one is freaked out or what definitely what would you say your first step is is the best or when you find out hide it don't tell anyone hope that goes away certainly when you discover a claim or a potential claim you you want to and you're required to report it as soon as possible actually in the policy there's certain conditions that you have to meet one is to prevent further damage from the home so if that means you know the homes on fire guess what you got to call the fire department you got to notify somebody you have to try to minimize damage in some respects if there's some you know a hole in the roof you should try to get somebody out there not necessarily to repair it but to cover the hole so that further water damage doesn't occur so you do have to try to minimize damage and then report it as quickly as possible when you report it you're going to kind of have a good idea or somewhat of an idea of what happened whether it was a tree that fell in the home kitchens fire a burst pipe so when you make the claim you're you're going to kind of give an idea okay you know I got water in my house or there's a tree that fell in the house but it's really up to an adjuster to come out and inspect the properties to determine the true of law and then also they would determine what type how much coverage that you would have what you don't want to do is make repairs final repairs until somebody sent out to look at the property and document the damage because let's say you have a kitchen fire and let's say you work in construction and you just start fixing it and then a month later you go to your insurance and you say well I had a kitchen fire and I've already fixed it and now I want you to pay me for it they're gonna say well we don't see any damage so you want an adjuster to come out as quickly as possible typically when you contact I know with us with our claims department when you contact us and you file a claim we we have independent adjusters around the country so we would send out our independent adjusters who would be at your location typically with it it's within 72 hours so it's within a very short period of time and then once the damage is documented then you can you know you can kind of start doing some repairs but at least we've documented what the damage was awesome sontee what you experienced when investors calling you up freaking out it's definitely intimidating um we actually don't file the claims for the investors we actually put them in contact with Proctor directly and I haven't heard any complaints I just kind of tell them hey you know everyone's been pretty awesome an idea of them I never had to file a claim on anything so I don't understand the entire process sarch finish and you know how it works and physically being in those shoes but I know you can or we've run into some hiccups and some things what happens when you file a claim while a loan is in foreclosure and Aaron I'm going to ask you that well I think it depends to a certain extent it's going to depend on the state so judicial state for instance in Florida what will usually happen if the property is destroyed during the course of the foreclosure as the foreclosure will continue but the borrower and the towards resolution of the insurance claim usually in conjunction if it's a horse police policy then obviously it's going to end up being the lender that does that what usually occurs in those situations is that once the amount of damage is agreed upon or once the lender accepts let's just say they said you know the insurance company comes back and says yeah it's only a $50,000 loss so I'm going to give you fifty thousand you know you as the lender might say well wait a second like you know it's a it you know decreasing the value by seventy five thousand or it's a thousand dollar problem so you have kind of a disconnect as to what the insurance company will actually pay and that instance it can go depending on the actual contract the actual insurance contract it can go to either arbitration or mediation it can be the subject of a separate suits we're in the foreclosure kind of stays on hold while that happens and it is very situational in the sense that you as the länder might proceed with a foreclosure claim for instance if it's a complete filing and we're just getting service of process rolling versus the sale is in two weeks and now you have a property that's deteriorated in value and you're potentially not going to have as good of you know fitting competition on the property so usually what happens is once the check is issued aside from just the normal who's gonna sign etc it gets placed in escrow or in suspense until those proceeds are determined how they're going to be handled so most mortgage contracts especially the Fannie Mae Freddie Mac forms actually allow the lender to make a determination on whether they are going to allow the borrower to actually restore the condition of the home or if the home is too far gone then that that amount would be placed towards the Dead itself and basically as a partial payoff of the debt of the property and that's at the lenders discretion so there's not a question for or you know to be answered about CFD be different and they're really not playing out significantly in at least Florida because they're treated as mortgages here right now in Georgia for instance under the security deed you have generally those same same situations happening so again it's really just gonna depend you know what what are the what are the terms of your insurance effect making sure that the servicer places that in suspense or an escrow until they receive some type of authorization on how to handle that those funds and then whether those are built out directly to the contractor or paid to the borrower to repair the home or to pay down the principal balance and given to the lender awesome so if the borrower is not occupying the loan we can't contact can we file suit in court and just get in the house and do other prayers would that cause any problems in the foreclosure process you actually you don't have a sue in order to conduct repairs on the property in your and this is again going to be a situationally dependent on the contracts itself in a note in mortgage again using the Fannie Mae Freddie Mac forms it's going to actually indicate in those forms that you as the lender have the right to protect that collateral so in filing insurance claims if that means you know force for repairing a property if that means bringing the property up to code if that means you know shutting off the water because of a flood whatever that is you have if the if the borrower is not cooperating you have right to go in there to do that to protect your collateral interest in the property so as a secured as a secured transaction for you guys it's actually kind of a best-case scenario because you have the ability to protect you....