Big Enough to Know Better, Small Enough to Matter
In my previous post, I discussed important information directly applicable both to people suffering from Hurricane Harvey and anyone else who has a significant property damage claim to file with their insurance carrier. I said that in my next post, I would focus on other potential insureds besides the fee simple owners of their primary residence. Those other two categories are lienholders (private lenders who have money secured by collateral that has now been damaged by a major event), and landlords and rehabbers.
If you are a lienholder, I trust you have taken prudent steps to make sure you are listed as a loss payee on the policy, and that you have exercised your rights to make sure the policy has remained in full force and effect. A particularly important area for you is to make sure that when insurance benefits are paid, the check has both the name(s) of the insured and your name as the lienholder on it. The insurance company should be making the check payable to both. This is to make sure your interest in the collateral property is protected.
Here is where you can use your superior knowledge but still nimble size to make a difference that traditional banks and mortgage lenders cannot. You can ask the insured to provide you with detailed information regarding the scope of work as well as background and reference material on the contractors involved. Let’s be brutally honest and recognize what has happened in the past. What we saw after hurricanes Katrina and Sandy was that less-than-honest contractors will flood the area and prey upon desperate and ignorant homeowners, seeking to take advantage of them by grabbing the money and running, doing slipshod work, or a host of other unacceptable and immoral behaviors. You can protect yourself and your borrowers by using good due diligence.
Lienholders, please remember there are portions of the benefits that you are not entitled to have any control over, like the portions that would provide coverage for displacement, and the replacement of personal effects and household goods. You can only have input in and control over the insurance benefits paid out by the carrier to replace and repair the damaged structure.
Landlords and rehabbers, I trust you have been properly trained to know the different types of policies you need to have. A future post will cover the difference between actual cash value and replacement cost, but I hope you have purchased replacement cost insurance. I also hope the policy you purchased is appropriate for the type of investment you have made into the property, specifically for non-owner-occupied properties.
Those of you who are in a flood plain, I trust you have purchased flood insurance. Those of you not in a flood plain who don’t have flood insurance, please see my previous post regarding important steps to begin a claim with FEMA, if needed.
Assuming you did buy the correct insurance, you are going to follow the procedures talked about in my previous post regarding making a claim with your insurance carrier (determining what damage was caused by what perils, like wind, rain, hail, etc.). You will need to document, document, document the full extent of the damage to your property. If you are in doubt, it would be prudent for you to pay the extra money to have an adjuster working for you to help you level the playing field between you and your insurance carrier. On large claims, this is a must!
Please put your hands on a copy of your insurance policy and carefully review it to determine what is covered and what is not covered. Ask detailed questions anytime you communicate with an adjuster as to what coverages you’re being allotted and how the damages are being calculated, and keep records of those conversations. Remember, you are in a first-party relationship with the insurer in this case, and they owe you a duty of good faith; but also remember that in a large-scale, catastrophic event, adjusters are going to be overwhelmed with more claims than they can manage. You need to do the best you can to simplify the adjuster’s job with excellent pictures, careful documentation, strong estimates for rehab costs, and accurate financials relative to the income being generated on your rental properties so you can avail yourself of the loss of rents provision of your policy.
Help your insurance carrier help you by keeping records, following up as needed, and tracking all expenses that are related to the claim.