Tag Archives: casualty

Banned from Their Land

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photo by MIKI Yoshihito

Realtor.com quoted me in Family Told They Can’t Live on Their Own Land (and You Won’t Believe Why). It opens,

One of the best perks of owning property—in fact, the main perk—is that you get to live on it. Or so we thought until we learned of a homeowner in Colorado who was told flat-out that her family can’t live on their own land. What’s going on?

Here’s the backstory: In June, an electrical fire left the Lafayette house of 70-year-old Marilyn Minor uninhabitable. Minor began repairs to her home so it would pass city inspections. But lacking the cash for a hotel or other accommodations, she and her home’s other residents—her son Wayne, daughter Charity, and Charity’s two kids—had nowhere to live. So they moved into their van, parked on their own land. It sounds reasonable enough, right?

Wrong.

Their living situation didn’t sit well with some neighbors, who alerted Lafayette city officials, who came back to Minor and told her that vacating her home wasn’t enough. Nope, until her place passed all inspections, the Minor family weren’t allowed to live anywhere on her property at all.

Why? That’s a question Minor is dying to get answered.

“Why can’t I live on the property that I pay taxes for and where I pay the mortgage?” she asked during an interview with Denver7. “I’ll go down fighting. This is my home.”

Although Minor anticipates her house will be fixed up in a few weeks, she’ll be dragged back into housing court next week and could face substantial fines if she remains on her property. And while some of her neighbors clearly disapprove, others are sympathetic.

“They shouldn’t have to be anywhere else,” one neighbor told Denver7. “This is their house.”

True, it’s their house, their land, their home. But according to experts we spoke to, that doesn’t mean they can live there however they please.

“Until the modern era, the common law was based on the understanding that, in many ways, every man’s home was his castle,” says David Reiss, a professor of law at Brooklyn Law School and academic program director at the Center for Urban Business Entrepreneurship.

“But for well over 100 years now, courts have acknowledged that governments have many legitimate reasons to restrict how property owners use their property. For instance, local governments regulate fire safety and sanitation issues, among other things, for the benefit of property owners themselves as well as their neighbors and the broader community.”

Saving On Homeowners Insurance

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Insurance Policy

Trulia quoted me in 5 Ways To Save On Homeowners Insurance. It opens,

Some basic decisions in life shouldn’t demand much debate in your mind. Behind car and life insurance, homeowners insurance is one of the biggest no-brainers. When golf ball–sized hail rips your Boca Raton, FL, roof to shreds, your dog bites a clueless runner, or someone breaks in and steals your vintage Larry Bird jersey and Grandmother’s pearl earrings, a basic homeowners insurance policy should have you covered. But as with any other form of shopping, it’s always best to look around, sniff out a good deal, and compare home insurance options. Luckily, deep discounts can be found. Here are five ways to save on your policy.

1. Shop around, then enlist help

Finding the biggest discount isn’t just for cars and airline tickets. In fact, a few phone calls and internet searches can land you some serious deals on homeowners insurance. “Start by looking to see if there are any companies that offer discounts,” says Cory Gagnon, associate financial adviser, The Beacon Group at Assante Wealth Management Ltd. in Calgary, Canada. “An insurance broker or financial planner can be very helpful in these situations as they have access to databases that allow them to source a wide variety of companies.”Then think about memberships you have — are you a veteran or AARP member? If you’ve used membership discounts for say, buying a car or booking a vacation, see if the association has discounts for homeowners insurance. Think hard about groups you’re part of: Check if your college alumni association offers discounts, or even the wholesale club you belong to (like Costco, BJ’s, or Sam’s Club).

2. Improve your home

Sometimes, Gagnon adds, little changes and improvements to your home can lead to lower premiums. “Some insurance companies offer lower rates for a variety of factors having to do with the structure and build of your home, including the type of wiring, plumbing, and structure material,” he says. “If you are in an older home, making an investment in upgrades to some of these core elements will make your home safer — for example, less threat of pipe bursts, electrical fires — and thus lower your insurance premiums with certain companies, saving you money in the long run.”

3. Know the difference between replacement cost and actual cash value

Homeowners insurance comes with options, and the best way to navigate those options is to know what they are. “One of the most important things that a homeowner should know about when shopping for [a] new or existing homeowners policy is the difference between replacement cost versus actual cash value [ACV],” explains Craig Ciotti, an insurance agent/broker with Fidishun Insurance & Financial Inc. in Yardley, PA. “Replacement cost will insure you for the cost that it would take to replace your home and all of the other personal property in it,” he says. “The other option is actual cash value. ACV is the actual value of your home and does not take into consideration zoning permits or removal of damaged property. ACV is more often used by investors and not homeowners.” If, for instance, a laptop you bought for $1,000 is stolen, with replacement cost insurance, you will get $1,000 for a new laptop. With ACV, you’ll get the current market value for the laptop — which will most likely be far less, since it has probably depreciated over time. ACV premiums generally cost less, but you’ll likely pay more out of pocket after a loss.

4. Agree to a higher deductible

As with other forms of insurance (ahem, car), you can save big on your policy if you simply increase your deductible. “This can shave a significant amount off of your annual premium, which is the good thing,” says David Reiss, professor of law and research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “The bad thing about it is, if you have a casualty, you will be responsible for it until it reaches the higher deductible limit. Thus, you should be able to handle that additional amount before agreeing to the higher deductible. Given that your premium typically goes up when you make a claim, a silver lining of the higher deductible is that you will file fewer claims.”
Creative Commons Photo Credit: Source

Hurricanes Hitting Underwater Mortgages

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A former colleague, Barry Goldberg, raises an important financial issue relating to the devastation that Hurricane Sandy left in its wake.

Massive flood, storm and fire casualties on homes with underwater mortgages may make for an odd set of incentives for borrower and RMBS investor.

A Fannie/Freddie form of mortgage contains language like this:

“In the event of loss, Borrower shall give prompt notice to the insurance carrier and Lender.   . . .  Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender’s security is not lessened.”

Homeowner has no financial incentive to rebuild — in all likelihood she would still be underwater.  If the owner of the mortgage believes in good faith that restoration is not economically feasible, then it will accelerate the balance of the loan and direct the insurance proceeds to be applied to sums owed pursuant to the mortgage.

Take this example:

Homeowner purchases home for $250,000.

The house is now worth              $150,000.

The mortgage is for                    $200,000.

The insurance policy is for          $200,000.

The homeowner (mortgagor) would be incentivized to abandon the property in a non-recourse jurisdiction and the owner of the mortgage (mortgagee) would be incentivized to take the proceeds from the insurance policy, foreclose and sell the property as a tear down.  It looks, from this simple example, like the mortgageee would be better off financially as a result of the massive casualty.

I would be interested to hear from others who have seen how this plays out in reality, given real players and real documents.