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Law Offices of Ronald W. Rutz
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June 7, 2003: Homeowner's Insurance

Q: If you look toward the horizon, gathering storm clouds are forming around the matter of a homeowner just being able to insure a house. Please look into it and maybe write a column (a number of realtor friends).

A: Thanks for the heads up (and yes, lawyers and realtors can be friends). I checked with several local real estate brokers and district managers of insurance companies and confirmed that every homeowner and potential purchaser needs to be alerted that an insurance crisis is in fact with us, and may only get worse.

For those hoping to purchase a home, securing a binder for insurance is just as important as obtaining a loan commitment and doing a home inspection. But be aware that, if the home fails the insurer's review, there is no obligation for the insurance company to issue a policy. In fact, some realtors are now putting in the ability to obtain coverage as a contingency for closing.

For a current homeowner, it means having a policy canceled with few replacement prospects, even at extremely high rates. If maintaining insurance on the home is a loan requirement (and it usually is), losing coverage could be grounds by the lender for accelerating the note and calling the loan due, even if the payments are current and were never late.

So what has changed? Because of losses in recent years, insurance companies are trying to protect themselves by identifying potential problem customers and properties. Thus, they have turned for information to a fact gathering organization named the Comprehensive Loss Underwriting Exchange, CLUE for short (I am not making this up, folks), tucked away in a small Georgia town.

Every time a person asks for a quote, inquires about a deductible, mentions a loss (even if a claim is not submitted), or actually files, the information usually is forwarded to CLUE and collected. Additional information is obtained from credit reporting agencies to measure credit worthiness, which is also added to the "dossier." Just two or three such "incidents," at least in some cases, have triggered extreme rate increases or policy cancellations, even if premiums are current and the insurance company never paid out any money. And past activity can come back to haunt an individual, even if it was associated with a different property.

Additionally, the house's history of claims by prior owners could also mean a cancellation of coverage or outright denial. And any "structural" problems in the past will be noted and weighed. Structural? Any problems such as past water damage or house mold, among others, is so defined.

Hence, a current real estate closing will fall through because of the buyer filing claims in the past and thus being unable to secure insurance for this purchase. For current owners, very affluent people who have impeccable credit history and envious net worth, but got caught in CLUE's database and were unable to secure other coverage might lose homes.

So what can be done? Nothing as to what has occurred. But having compiled suggestions from the April issue of Money and an article by Kaja Whitehouse of Pinnacle Mortgage Alliance, the following should be considered: obtain a history of the claims and structural problems of the property, clean up one's own credit rating and never be late on any kind of payment, have a high deductible so the insurance covers major damage only, think twice about submitting or even mentioning claims, and try to take advantage of all discounts available under the policy.

But the bottom line is that many need to brace themselves to pay a lot more for home insurance and be thankful that they can even find a company that will insure them. But in this day and age of information gathering, the coming "insurance crisis" is now with us.

Information from CLUE can be obtained at www.choicetrust.com for $12.95. (I do not know if this will be noted and used against you in the future!)

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