Part II of Our Investor Series:

"How To Insure Seller-Financed Properties"

INSURING WRAP-AROUNDS:  

THE PROBLEM OF ESCROW ACCOUNTS 

One of the biggest hurdles regarding wraparound mortgages is that of hazard insurance. The documentation and transfer of property is the easy part, it's the property insurance itself that presents an obstacle.  The reason for this is because of the fact that an insurance policy is a very straightforward legal contract between the policy owner (who must have an 'insurable interest') and the insurance company. These contracts are NOT assignable (like a real estate contract is) and insurance is not designed to work in a situation such as a wraparound transaction where the parties are trying to 'skirt the system' (for lack of a better term) and keep the underlying lender in the dark about the transfer of property. Trying to be creative and somehow 'modify' an insurance contract or make it magically fit the needs of the wrap transaction is like using a screwdriver to paint a wall; it's not designed to perform that specific task and you'll end up disappointed with the results. Rather than discussing the many pieces of bad advice and improper (or even illegal) ways to insure these properties, this article is going to focus only on the aspect of the escrow account itself.

Upcoming Series Articles

• (JUNE 8)   Don't Fear the 'Due-On-Sale' Clause 
• (JUNE 15) Wrap-Arounds: The Problem of Escrow Accounts    
• (JUNE 22)   BAD (and Sometimes) Illegal Insurance Advice for Wraps 
• (JUNE 29)   The Problem of Claims: The Mortgagee Endorsement  
• (JULY 6)      The 'Standard' Method of Insuring Wrap-Around Properties  
• (JULY 13)    How To Best Insure a 'Wrap' Without Tipping-Off The Lender  
• (JULY 20)   Insuring Property Titled in a Trust (Specifically Wraps)