When Carrying Real Estate Paper, Insist On Property Insurance

Home sellers need to be aware of some important details when deciding to take note of a real estate transaction. When the complexities of traditional real estate sales transaction financing are removed and seller financing becomes the solution, the process is so simple that it’s easy to overlook some of the details.

The only difference between traditional lending methods and seller financing is who the lender is. The financing process should be the same for both, but with seller financing it’s easy for the seller to get overwhelmed and lose the plot. Sellers must follow the same process as if a third party lender were involved.

Fires happen and if you are the note holder of a property that has just burned down, you want the peace of mind that the payer has adequate property insurance to cover the loss. If property insurance with adequate coverage has not been put in place, then you have just seen the collateral secured to your promissory note go up in flames. What are you going to execute if the payer decides to stop paying you and leave?

The policy must designate the holder of the note as the beneficiary of losses. This designation will ensure that you are informed about the status of the policy and receive a certificate of insurance with each renewal. Every year, the note holder must insist that the policy be renewed with adequate property loss coverage.

Often when seller financing is the solution to a real estate transaction, the insurance policy is the overlooked item because it is the responsibility of the payer. Note Landlords must require homebuyers as part of the contract to purchase adequate property insurance. Selling a note that does not have adequate property insurance or no insurance at all would be very difficult to sell on the secondary market. Expect to get a deep discount if a seller is willing to buy without insurance. That’s why it’s so important to have a professional note on board to verify each element and protect the structure of the banknote and the creator.

Story: The Texas Note Company recently assisted a client with the sale of an owner-financed note in Pflugerville, Texas. A note of mobile home with land. The note had a face value of $50K with a balance of just over $42K. We were able to make you a full purchase offer on the note you accepted. She provided us with all the necessary documents we needed for the sale of the note from her.

trust deed
notes document
Written guarantee
Declaration of establishment
property insurance
Payer Social Security Numbers
History of payments with bank deposit slips
Photos of the property

(Just a quick note: If you are considering selling your note or would like a note quote, we will need these documents)

Upon review of all documents, it was determined that the insurance policy on the property was only for $5,000. This was a problem because if the house burned down or was destroyed, the homeowner’s policy would not have been able to replace or rebuild it for just $5,000. . The risk to an investor would have been too great and finding a buyer without adequate coverage would have been very difficult. If the house was destroyed and the paymaster left, what would be left to execute? This story ends well, Texas Note was able to work with the payer and his insurance agent to increase the policy amount to the required level of $45,000 at a cost increase of only a dollar per day to the note payer. In addition, we amended the Deed of Trust to include the provision that the proper amount of property insurance must be maintained each year. The deal was then closed, and the seller of the note received a lump sum in cash.