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It is a commonly misunderstood challenge: clarifying the issue of how to properly insure a “subject to” property. The obvious dilemma is the “Due on Sale” (DOS) clause being invoked and the mortgage company calling the note. Though seemingly complex, some common sense rules-of-thumb usually apply. If you (or your entity) own, or have a financial “stake” in the property, be the “first named insured”. The first named insured is the primary recipient of any potential claim benefit or liability protection. An “additional insured” will garner liability protection only. A “loss payee” will have its interests protected in the event the property itself is damaged. (A mortgagee is inherently BOTH). If you decide to keep the “homeowner’s” policy in place and be named as the additional insured, be advised. If it is discovered that the ex-owner, the first-named insured in this case, no longer owns the property, expect the insurer to deny based upon the fact the policyholder no longer owns the property. Even if you manage the claim to be paid, you are not the entity to receive the proceeds, as you are not the first-named insured. If you did attempt to be added as a loss payee as well, chances are the insurer will question the necessity for you being named as such. When the insurer discovers you now own the property, they will need to write a new policy.
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