vacancy, un-occupancy, foreclosures a sign of our times presented by: insurance community center

. www.InsuranceCommunityUniversity.com

Vacancy, Un-Occupancy, Foreclosures

A Sign of Our Times

Presented By:Insurance Community Center


Disclaimer Not only are policy forms, clauses, rules and court decisions constantly changing, but

forms vary from company to company and state to state.

This book is intended as a general guideline and might not apply to a specific situation.

Information which is copyrighted by any proprietary to Insurance Services Office, Inc. (“ISO Material”) is included in this publication. Use of the ISO Material is limited to

ISO Participating Insurers and their Authorized Representatives. Use by ISO Participating Insurers is limited to use in those jurisdictions for which the insurer has an appropriate participation with ISO. Use of the ISO Material by Authorized Representatives is limited to use solely on behalf of one or more ISO Participating

Insurers.

The author and any organization for which this seminar is conducted shall have neither liability nor responsibility to any person or entity with respect to any loss or

damage alleged to be caused directly or indirectly as a result of information contained in this book.

Contact Info: 714.206.9583www.insurancecommunitycenter.com

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What This Course Will Cover1. Background on the current crisis affecting

homes and commercial buildings2. New realities and New Challenges3. Insurance issues relating to vacancy and un-

un-occupancy4. What are the solutions?

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Background The crisis that has swept the nation


What Happened?It’s a Complex Question Crisis for both the “homeowner” and business.

Homeowners losing their homes Homeowners filing personal bankruptcy Businesses going bankrupt and foreclosing on properties

Property owners supporting vacant buildings Banks foreclosing and taking on liabilities or NOT foreclosing

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. www.InsuranceCommunityUniversity.com6


New Realities & New Challenges

Foreclosures and Bankruptcy


Foreclosures (International Business News)

Total foreclosures in 2009 reached 2.8 million, a 21 percent increase over 2008 and a 120 percent rise compared to 2007, according to foreclosure sales Web site RealtyTrac in a year-end report released Wednesday.

$1,900,000 in foreclosures in first six months of this year

Number of Foreclosures /statewww.ResponsibleLending.org

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Foreclosures (International Business News) The 10 states with the highest foreclosure rates in 2009 were: Nevada, Arizona, Florida, California, Utah, Idaho, Georgia, Michigan, Illinois, and Colorado.

California, Florida, Arizona, Illinois account for 50 percent of the foreclosures. The other 10 states with the largest numbers of foreclosures are Michigan, Nevada, Georgia, Ohio, Texas, and New Jersey.

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Renting becomes a reality

The number of renters in America is on the rise as foreclosures continue to take out homeowners everyday.

In fact, a staggering 37.1 million housing units were occupied by renters in the second quarter, up from 34.3 million units in 2006, per Census Bureau data.

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National Association of Realtors National Commercial Vacancy

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Types of Foreclosures

Counties Foreclosures County can foreclose on the home for unpaid property taxes, and the mortgage company will be pursuing a lawsuit for the defaulted mortgage contract

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Judicial Foreclosure

Both judicial and non-judicial foreclosures are permitted by law depending on the state

This where the lender needs to file an official complaint against the borrower

This complaint should be approved by the local courts

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Non Judicial Foreclosures These foreclosures come about because of language contained in the mortgage agreement whereby the lender is authorized to sell the property if there is a delinquency in payments.

Normally, non-judicial foreclosures are not utilized frequently and some states even prohibit them.

That's why it's important to know all of your state's foreclosure laws.

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ACORD Application 2009/10

General Information Has applicant had a foreclosure, repossession, bankruptcy or filed for bankruptcy during the past five (5) years?

Has applicant had a judgment or lien during the past five (5) years?

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ACORD Application 2009/10

DURING THE LAST FIVE (5) YEARS [TEN (10) YEARS IN RHODE ISLAND], HAS ANY APPLICANT BEEN INDICTED FOR OR CONVICTED OF ANY DEGREE

OF THE CRIME OF FRAUD, BRIBERY, ARSON OR ANY OTHER ARSON-RELATED CRIME IN CONNECTION WITH THIS OR ANY OTHER PROPERTY ?

(In RI, failure to disclose the existence of an arson conviction is a misdemeanor punishable by a sentence of up to one (1) year of imprisonment.)

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Commercial

“Foreclosures/Bankruptcy”

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Commercial Hardships Massive and rising unemployment levels Reduced consumer spending, Frozen credit markets Internet revolution all mean that shopping center and office property demand have fallen.

http://www.realtytrac.com/content/news-and-opinion/foreclosures-are-commercial-properties-next-4971

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Commercial Hardships

As chain stores have gone out of business, massive volumes of retail space have become available.

Current tenants bartering for lower prices New Debt Less Equity

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Commercial Building Vacancy / Unoccupancy Causes

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Insurance issues relating to vacancy and un-occupancy

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Short Sale vs. Foreclosure

Short Sale A short sale is when the bank agrees to take less than what's owed on the house.

Borrower still owns the home

Typically must list for at least 3 months

Borrower must still carry insurance

Foreclosure A foreclosure is where the bank taken back the property

REO Real Estate Owned Could still have a deficiency judgment after sale

Bank insures property Problem arises if borrower is squatting

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Homeowner Defaults Payments to the Bank

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New Realities

Cash for Keys Done by some banks for homeowners to receive cash in exchange for surrendering the keys and vacating with the stipulation that the home will be left in good condition and cleaned.

Jingle Keys Jingle mail is a phrase used to describe the envelopes containing house keys, which are mailed by homeowners to mortgage lenders, without authorization from the lender. Home owners decide to mail the house keys to the lender because the owners believe their home is no longer worth keeping, and they want to give the home to the lender.

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Vacant Exposures

A vacant properties are an "attractive nuisance" that appeals to vandals and thieves

Vacant homes also present numerous liability issues "Kids climbing over a dilapidated fence could get hurt, or teens partying in a vacant home could fall and slip

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Who is occupying the foreclosed homes? Homeowners squatting in their own home Homeless moving into vacant homes Renters whose landlords were foreclosed on Gang members, using empty houses as crash pads and for drug stashes

New term: Rent Skimmers

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Glut of Foreclosed Homes Encourages Scams, Desperation

3/29/09 PBS News With the national foreclosure rate still climbing, some chose to live in foreclosed homes while others have been the victims of "rent skimmers," people who pretend to own a foreclosed property and scam tenants out of thousands of dollars in security deposits and fees. Special Correspondent Jeffrey Kaye reports from Los Angeles

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Rent Skimming

DET. ERIN CAMPHOUSE, Los Angeles Police Department: Rent skimming, it is epidemic in the city of L.A. right now.

DET. ERIN CAMPHOUSE: They might drive a neighborhood and see three homes in that area, write down the addresses, and then go back and advertise those homes for rent. And when they advertise them for rent, it's usually a monthly rental price that's probably under market.

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Bank Insurance (Title Insurance) IRMI Title insurance in the United States is indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the United States as a result of the comparative deficiency of the U.S. land records laws. It is meant to protect an owner's or a lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.

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Bank Insurance—Mortgagee Impairment Insurance Policies are one way to insure a customer's property when the customer fails to obtain insurance

The amount of coverage is usually the amount of the outstanding loan.

Banks can (in most states) charge the premium back to the customer's account.

Most forced-placed policies are on a reporting form.

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Bank Insurance—Mortgagee Impairment Insurance Usually written on independently filed forms The policy may be written to cover loss due to required perils only (that is, only those perils for which the borrower is required to maintain insurance on the mortgaged property—fire, explosion, etc.) or extended to cover loss due to certain "non-required perils" (such as earthquake) as well.

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Bank Insurance—Mortgagee Impairment Insurance Often, mortgage impairment policies also provide liability insurance for certain liability loss exposures of the lender that are associated with servicing the mortgage, such as liability for mishandling of escrowed insurance premiums and causing a lapse of the borrower's coverage,

failing to pay taxes on behalf of the borrower

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Homeowner’s Property Coverage


Homeowners Insurance and Vacancy or Un-Occupancy Intended for an owner who is in residence Typically the coverage requires they occupy within 30 days of the inception of the policy. If an insured does not occupy then coverage would be jeopardized.

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Homeowners Insurance and Vacancy or Un-Occupancy CRUCIAL: If the home is NOT occupied the

insurance company must be made aware Reluctance because company might cancel Reluctance because policy might cost more Reluctance because might lose the client Reluctance because don’t have a market

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Vacancy/Un-Occupancy Situations

Secondary Home Seasonal Endorsement

Rental Property Typically a Dwelling form unless occasional rental

Owner intends to occupy but is making improvements before they move in

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Spec Home Question on Application—For Sale? Occupied and doing renovations Unoccupied and doing renovations

Is it under construction or not? Applications may specifically state that the home must be occupied within 30 days or NO coverage

Is the insured aware…is the company aware

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Home becomes vacant or unoccupied after the policy has been issued Has the insured informed the agent If the agent was informed they MUST notify the company

The company will probably cancel the coverage Often times notice of cancellation has been sent for non-payment and that is how the agent finds out

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Client may contact the agent and put them on notice that their home is going to be foreclosed.

They may ask what they are supposed to do in terms of insurance. GOOD QUESTION

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Process of Review

Underwriting Guidelines Application Policy

Definitions Coverage A Dwelling Coverage Coverage B Other Structure Coverage Causes of Loss and Vacancy

Vandalism Other

Deductible

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Underwriting Guidelines

OCCUPANCY REQUIREMENTS The named insured must occupy the described premises as his principal residence.

The building must be occupied by the insured exclusively for residential purposes

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Underwriting Guidelines

This is an excerpt from “UNACCEPTABLE RISKS”

Vacant buildings unless recently purchased and to be occupied within 30 days.

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Application

What does it say Who filled it out Who signed the application Was there any discussion about “un-occupancy or vacancy”

Does it say the insured must occupy in 30 days Insurance companies rescinding coverage—what does that mean?

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ACORD Application

OCCUPANCY UNOCCUPIED OWNER TENANT VACANT

7. IS THE DWELLING / HOME FOR SALE? (no explanation required)

(Some homes are continuously on sale)

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ACORD Application

APPLICANT'S STATEMENT: I HAVE READ THE ABOVE APPLICATION AND ANY ATTACHMENTS. I DECLARE THAT THE

INFORMATION PROVIDED IN THEM IS TRUE, COMPLETE AND CORRECT TO THE BEST OF MY KNOWLEDGE AND BELIEF. THIS

INFORMATION IS BEING OFFERED TO THE COMPANY AS AN INDUCEMENT TO ISSUE THE POLICY FOR WHICH I AM APPLYING.

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Producer Signature Producer Name State Producer License #

Applicants Signature Date National Producer #


ACORD Application

How many times has the applicant NOT signed the ACCORD application

How many times has the agent signed the application on behalf of the insured. I hope NEVER!

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ISO Homeowners Definition

8."Residence premises" means: a. The one family dwelling, other structures,

and grounds; or b. That part of any other building;

where you reside and which is shown as the "residence premises" in the Declarations.

Requires residency of Named Insured

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ISO COVERAGE A – Dwelling

We cover: 1.The dwelling on the "residence premises" shown in the Declarations, including structures attached to the dwelling; and

Coverage could be compromised if Named Insured is not in residence

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ISO COVERAGE B – Other Structures

We cover other structures on the "residence premises" set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line, or similar connection.

Coverage could be compromised if Named Insured is not in residence

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ISO Glass or Safety Glazing Material

We cover: a. The breakage of glass or safety glazing material which is part of a covered building, storm door or storm window; and b. Damage to covered property by glass or safety glazing material which is part of a building, storm door or storm window. This coverage does not include loss on the "residence premises" if the dwelling has been vacant for more than 30 consecutive days immediately before the loss. A dwelling being constructed is not considered vacant.

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ISO Homeowner’s Perils of InsuranceCOVERAGE A – DWELLING and COVERAGE B – OTHER STRUCTURES We do not insure, however, for loss: 2. Caused by:

d. Vandalism and malicious mischief if the dwelling has been vacant for more than 30 consecutive days immediately before the loss. A dwelling being constructed is not considered vacant;

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Direct Writer Form

“Vandalism or Malicious Mischief or Arson if the dwelling is vacant” We do not insure loss or damage directly or indirectly caused by,

arising out of, or resulting from: Vandalism or malicious mischief if

The dwelling has been vacant beyond a period of 30 days or no person has actually legally lived in the dwelling for a period of 30 days or

Committed by any person who is regularly residing on the residence premises or

Arson, whether a result of vandalism or malicious mischief if the dwelling has been vacant for a period beyond a period of 60 consecutive days

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ACE

If your residence has been vacant for more than 30 consecutive days immediately before a covered loss, we will apply the greater of the deductible amount shown in the Declarations or:(a) 5% of the Dwelling limit for a dwelling where the loss occurs; or

(b) 5% of the Personal Property limit or 5% of the Building Additions And Alterations limit,

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ACE

This deductible applies to your residence, personal property and Extra Benefits.

If your residence is increased because of d. Full Replacement Cost Protection below, the deductible will be based on the increased limit.

This vacancy deductible does not apply if we give our prior written consent.

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Solutions

ISO has no endorsement for vacancy on a homeowners policy

Insurance companies may have an endorsement such as State Farm “However, by purchasing an endorsement, homeowners "buy back" that exclusion for a cost for such an endorsement is usually under $100, and coverage lasts for the duration of the policy period” (State Farm Web Site)

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Solutions

Some companies will “allow” the home to be vacant if they are notified and will charge an additional premium.

Other companies such as Farmers, who do not write vacant homes, have a relationship with Foremost Insurance who writes vacant homes up to a specific limit

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Solutions

Specialty companies are emerging that write vacant homes. Check out http://www.vacanthomeinsurancenow.com/programs

One thing for sure. DO NOT expect your homeowners policy to respond if the company is not notified or it is unendorsed

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Commercial Property Coverage


Process of Review

Application Policy

Definitions Building Causes of Loss and Vacancy

VandalismOther

Deductible

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ISO 6.Vacancy—Description of Terms

a. Description Of Terms (1) As used in this Vacancy Condition, the term building and the term vacant have the meanings set forth in (1)(a) and (1)(b) below:

a) When this policy is issued to a tenant, and with respect to that tenant's interest in Covered Property, building means the unit or suite rented or leased to the tenant. Such building is vacant when it does not contain enough business personal property to conduct customary operations.

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ISO 6.Vacancy—Description of Terms

(b)When this policy is issued to the owner or general lessee of a building, building means the entire building. Such building is vacant unless at least 31% of its total square footage is:

(i) Rented to a lessee or sub-lessee and used by the lessee or sub-lessee to conduct its customary operations; and/or (ii) Used by the building owner to conduct customary operations.

(2)Buildings under construction or renovation are not considered vacant.

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ISO 6. Vacancy Provisions If the building where loss or damage occurs has been vacant for more than 60 consecutive days before that loss or damage occurs:

(1) We will not pay for any loss or damage caused by any of the following even if they are Covered Causes of Loss:

(a) Vandalism; (b) Sprinkler leakage, unless you have protected the system against freezing; (c) Building glass breakage; (d) Water damage; (e) Theft; or (f) Attempted theft.

(2) With respect to Covered Causes of Loss other than those listed in b.(1)(a) through b.(1)(f) above, we will reduce the amount we would otherwise pay for the loss or damage by 15%.

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Vacancy Permit CP 04 50 07 88Issue:

The insured has a vacant building to insure. The BPP Coverage Form eliminates coverage for certain specified types of losses and reduces payment by 15% for others.


Vacancy Permit CP 04 50 07 88Solution:

This endorsement eliminates the vacancy limitation condition in the Business and Personal Property Coverage Form.

Allows coverage to continue at full value when a building is deemed vacant beyond 60 days.

Can be used to cover vandalism and/or sprinkler leakage.


Vacancy Changes CP 04 60 10 00

Issue: The insured has a partially occupied building to insure.

The BPP Coverage Form eliminates coverage for certain specified types of losses and reduces payment by 15% for others unless the building is occupied or 31% is rented.


Vacancy Changes CP 04 60 10 00

Solution: This endorsement may be used to reduce the occupancy requirement down as low a 10% which then allows coverage to continue with reduction of loss payment or elimination of certain covered perils.


Summary

Ask the right questions of your insured Make certain the application is complete, correct, signed by the insured, and explained to the insured

If you are notified that an insured’s property is being foreclosed on; vacant; or not vacant and the insured is still residing there inform the insured of their obligations

You must notify the insurance company even at the risk of having to write the coverage with a different carrier at a higher rate

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vacancy, un-occupancy, foreclosures a sign of our times presented by: insurance community center

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