Unexpected Consequences - Insurance woes.

Earlier this year, I helped a very nice lady sell her home in Stockbridge.  She had lived there for 20 years.  She was devastated about the sale.  It was a very hard decision for her.  She had taken care of the home, lovingly.  It was in excellent condition.  The reason she sold – she no longer felt safe.  A new “element” had moved into the nearby apartments and into this cute little subdivision.  Now, there were numerous rentals in her sweet little subdivision and she was no longer sure of who belonged or didn’t belong in the subdivision.  She had been broken into twice – horrifying for someone who lives alone.  As anyone would, she placed two insurance claims to cover the damages and the loss of her valuables.

So, we put the home on the market and it sold almost immediately.  It was purchased by an investor; it, too was going to be a rental.  We got through the next few weeks without incident until the day of closing. 

My client had moved out of the home early, even though she had a couple of days after closing to actually move.  She had been moving a little at a time.  The day before closing, she took some things down from the attic and left them on the counter.  They were the last things that she was going to move out on the day of closing.

So, the day of closing, she went to her house for the last time and her key no longer worked. There was a mechanical (non-Realtor) lockbox on the door. The locks had been changed.  She called me in a panic. I immediately called the selling agent to see what she knew about this.  Apparently, the buyer’s staff had mistakenly gone to the house and changed the locks.  But, the most horrifying thing was that her possessions had been taken as well.  She was devastated and in tears. 

When an investor buys a home, they hire people to go in and empty the home - they call this a "trash out".  The good news is that we tracked the workers down and I insisted that they come to closing with her items with an admonition that if anything was missing, we were not going to close.  They came with everything and we closed – end of story, right?

Not so fast.

We started looking for her new house after about a month or so.  We eventually found the cutest home.  She worked with my preferred lender and everything was going along just beautifully.  Until… She started to arrange for her homeowner’s insurance. 

Typically, insurance for such a well-qualified buyer on a purchase price of just over $200,000, should have been between $750 to $1,000.  Imagine her surprise when she couldn’t get insurance from her previous company, nor the next several “big names” she tried.  Imagine her greater surprise when she was quoted $1,800!  Why, because she had had two claims in the same year.  Imagine what this cost would do to a less qualified buyer.  That additional $65 per month could have easily derailed her purchase.

Moral of the story – if you are planning to buy a home and have had recent insurance claims, you may be rendered uninsurable or may have to pay much more than the going rate. This could impact your qualification and force you to buy a smaller home.

To avoid this problem - when you get pre-qualified for your mortgage, don't wait to get a quote on your insurance.  Usually, you only have a set number of days, per your contract, to get full approval for  your mortgage.  Since the amount of your insurance will impact what you are qualified for, you should check on your insurance within your financing contingency period.