You wouldn’t marry someone without asking them about their past. You also shouldn’t buy a house without investigating its past.
Checking for liens, unrepaired damage, mold, termites, and other potential issues is an important and required part of the “due diligence” your potential lender requires before approving a mortgage on your family’s home. dreams.
But there is more to consider. You should also check to see if any insurance claims have been filed by previous owners of the home, said Mark Friedlander, director of corporate communications for the industry-funded Insurance Information Institute.
Buyers looking for homes in South Florida’s current real estate market are facing challenges obtaining coverage in Florida’s struggling insurance market. Pushed back by high levels of fraud and abusive litigation, many insurers have stopped underwriting policies for properties that were built more than a decade ago or whose roofs are over a certain age. To minimize the risk of claims, insurers try to weed out properties in less than perfect condition.
A history of claims against a home can increase premium costs for future coverage. As a Coral Springs homebuyer recently discovered, it can also be a business killer if the home has other issues that would cause insurers to dismiss it as an unacceptable risk.
“Florida insurers continue to tighten their underwriting standards for homeowners insurance coverage due to the current statewide property insurance crisis,” Friedlander said in an email. “This includes assessing the risk of a specific property that may have experienced significant claims activity in the past and refusing to provide coverage to a new owner of that property.”
Joe Heimovics found out the hard way recently after signing a contract to buy a 35-year-old home in Coral Springs this spring. A few days after his agent told him he had found a state-regulated company willing to write a policy, the agent called him back.
The company had searched the property through a database of claims reports and discovered an insurance claim filed nine months earlier by the home’s previous owner, Heimovics said. The claim, combined with the age of the home, made it ineligible for coverage, her agents told her.
Heimovics declined to identify the company that decided not to insure his new home, saying he did not want to create any conflicts with the company.
The previous claim, for repairing water damage caused by a leaky washing machine, cost the insurer $16,000, Heimovics said. But whatever damage was done, it was clearly repaired and the laundry room that housed the device showed no signs of mold or water damage, he said.
Heimovics, a lawyer who specializes in corporate finance and real estate transactions, said several insurance agents he spoke to were unable to find another regulated company willing to cover the home. Its replacement value passed the $700,000 threshold for eligibility with state-owned Citizens Property Insurance Corp., the insurance of last resort if private companies fail to insure a home.
So to satisfy his mortgage lender’s requirement for full replacement coverage to be eligible for financing, Heimovics exited the regulated insurance market and purchased a policy from an unregulated company known as excess line carrier name. Since excess line companies are not required to seek state approval for their rates, the policy cost him about $7,000 more than he would have paid for insurance if the previous owner had not filed a claim, he said.
More homeowners are turning to the surplus market, Friedlander said. “We are seeing a significant increase in excess line coverage for existing homeowners and new buyers where no private market coverage is available and where citizens have rejected coverage due to various risk factors,” a- he declared.
Insurers also look at homeowners’ credit scores and their own claims history to assess the likelihood of future claims.
Every time someone signs a contract to buy an insurance policy, the insurer pulls what is called a CLUE (Comprehensive Loss Underwriting Exchange) report. It works much like a credit report: insurance claims filed by an applicant stay on the report for seven years, just like payment histories stay on your Experian, Equifax, or TransUnion reports.
CLUE reports track the claims histories of individual policyholders and properties, Susan Manning wrote in June 2021 for the insurance marketplace website Insure.com.
“Most home insurance companies provide information to the CLUE report, so your claims history follows you,” Manning wrote. “The claims history of your home also influences rates – even if the claims occurred before you owned the home.”
Heimovics’ experience is probably not common, but could be a sign that insurers are looking for other ways to tighten their eligibility criteria.
Locke Burt, president and CEO of Ormond Beach-based Security First Insurance, said a single claim from a previous owner would not prevent a new owner from being covered by his company unless other factors were present. “We would not uphold a priority claim filed by the previous owner against the new owner of the house,” he said. “What you would do is inspect the house to make sure the repairs were done properly.”
Owners of homes worth less than $700,000 should be able to turn to Citizens Property Insurance Corp. whether a previous homeowners insurance claim and the age of their home disqualifies them from private market coverage, said Citizens spokesman Michael Peltier. But it depends on all other conditions working properly, like a newly constructed roof and no unrepaired damage.
But Peltier acknowledged, “Other carriers may not write home due to age and a prior claim.”
Tom Stravecky, a realtor with ERA Infinity Properties in Fort Lauderdale, said he’s heard that a prior claim against a home could affect a buyer’s ability to get a policy on the property. However, he said he hadn’t seen such a scenario kill any of his chords.
Stravecky recommends buyers protect themselves by having their agent purchase insurance immediately after signing an initial purchase agreement. If a CLUE report reveals a disqualifying history of claims by the previous owner, it’s best to find out about it earlier in the sale process. “Previously, buyers would wait until the last minute to initiate a policy,” he said. “I recommend doing it right away.”
No, buyers cannot access CLUE. Federal law restricts access to CLUE reports to a home’s owner, lender, and insurer. Insurers typically commission reports when verifying claims from potential policyholders, as in the case of Heimovics. Homebuyers can also ask the seller to purchase a CLUE report for around $20.
Most contracts require buyers to obtain financing within 30 days or potentially lose their deposit. This is set out in what is called the contingency clause in purchase contract financing.
With a shortage of homes on the market, buyers are bidding without thinking about availability or the cost of insurance, Heimovics said. Home sellers and their real estate agents are not required to investigate past insurance claims or include anything regarding insurance claims history in a sales contract. “But it would have been helpful for me to know that,” he said.
Homeowners who might be considering selling their home should consider how filing an insurance claim might affect their ability to complete a sale, Heimovics said. If the damage can be repaired without filing a claim, that choice could avoid complications later, he added. “It goes both ways,” he said. “Everyone is at risk of something affecting them if an insurance claim is filed.”
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].