If no one’s paying the mortgage, who’s got the property insurance?
In foreclosure-heavy South Florida, the vacant home next door could be a risk for all of us, especially if a hurricane threatens
By Julie Patel | South Florida Sun-Sentinel
5:59 PM EDT, June 11, 2009
If no one’s paying the mortgage on that vacant house in foreclosure down the street, you might wonder who’s paying the insurance.
The answer could easily be: no one.
That could be hazardous for your house and your property insurer, especially in hurricane season.
Here’s why: Vacant houses are more vulnerable to vandalism, theft and accidental fires. If no one puts up shutters before a hurricane approaches, the house is more likely to be ripped apart, launching debris into your home.
Your insurer will pay for insured losses, but some drop policyholders with multiple claims or boost premiums. If insurers’ losses increase significantly, everyone’s rates could go up.
Condominium owners have special concerns because they share walls and roofs with empty units.
"These vacant, uninsured units are like the rats that hide out of sight in dark alleyways. If a major hurricane hits … people will be shocked at how many there are," said Robert Friedman, an attorney with Gunster law firm in West Palm Beach. "You will see an increase in litigation among [condo] associations, unit owners and insurers."
Foreclosures in Florida have soared, more than doubling in Broward County since last year. There are about 250,000 homes in some stage of foreclosure statewide, including 11,325 in Broward County and 3,782 in Palm Beach County, according to the most recent estimates from RealtyTrac.
Most insurers are skittish about property that doesn’t have residents to ward off trouble.
Earlier this week, an insurance agent representing Florida bankers on a Citizens Property Insurance committee, floated the idea to have the state-backed insurer cover vacant properties because there’s little coverage in the private market. The idea didn’t get a warm reception, but it will be discussed later this year.
Lenders say part of the problem is that they’re not officially owners during the foreclosure process, which can take six months or more.
"To obtain new insurance without ownership is very difficult, and you are shaking in your boots during the waiting period," said Todd Campbell, who owns Federated Mortgage Services in Fort Lauderdale.
Friedman, who advises banks, developers, investors and condo owners on insurance issues, says he has found coverage for some clients through so-called surplus lines insurers, which are not fully regulated.
"There is no doubt that many vacant units are uncovered, either because the owners were unable to get coverage or because the coverage is in a ’gap’ period due to the foreclosure process," Friedman said.
Even when lenders own the property, insurance is expensive or difficult to find. That leads some to go with little or none.
Some insurers are wary of offering coverage in neighborhoods and condo buildings clustered with empty homes.
"Some [condo] buildings have such a stigma from the number of vacant units that insurers will not insure occupied units for fear of increased claim and assessment costs if a loss were to occur," Friedman said.