Does REO Insurance Need To Be Comprehensive?

Foreclosure insurance is, by definition, going to be covering an empty home. So, if nobody's living in the home, if it's just going to sit dormant for awhile, then how comprehensive does the insurance really need to be? Well, the assessment process here is much like with any other insurance policy, it all starts with...

Evaluating Your Risks

Nobody's living in the home right now, but the people living in a home are only one part of the risk that comes with insuring a home. A vacant home is just as, or more at risk than an occupied home when it comes to certain risk factors:
  • Vandalism
Is there an easier target for vandalism than a house with nobody in it?
  • Natural disaster
You probably won't see a fire resulting from faulty wiring while the power is turned off, but lightning strikes, flooding, earthquakes, storm damage... Mother Nature isn't specifically targeting occupied homes.
  • Theft
Although nobody is storing possessions in the home, a vacant house is a prime target for theft of materials, like copper wiring.

Foreclosure insurance is, more often than not, intended to protect an investment. REO insurance is there to ensure that, should something happen to a foreclosed home while you're looking for a new buyer, then the money that you've put into the home doesn't go up in smoke.

So you need to consider the risks with your particular property, in your particular area:

  • What's the weather like?
If you live in the Southwest, earthquakes might not be a major concern, but they certainly will be in California, and anywhere from Los Angeles to Las Vegas, you're going to need to consider the risks of fire damage. Likewise you'll need to consider flooding and storm damage in the South.
  • How's the neighborhood?
In a high-crime neighborhood, vandalism and theft are major concerns. Less so if you're insuring a rural farmhouse.
  • When was the last time you had the home appraised?
You need to make sure that you're covering the home for what it's worth, not what it was worth one, two, three years ago when you first started lending to the previous occupant.

Essentially you're looking to cover your foreclosed-upon property through a lender placed property insurance policy to a point where you feel comfortable, and where your investment is protected. "Vacant" doesn't mean "risk-free." Plenty can go wrong with or without an occupant, and comprehensive REO insurance will keep you covered when it does.
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