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Do You REALLY Need Homeowners Insurance at Closing? (yes)

A cautionary tale for all my friends and colleagues who represent buyers in real estate transactions.

I had the good fortune to help a long time client close on her purchase of a three flat last Friday. In a year that has been replete with difficult transactions, this one was pretty easy. An all cash purchase of a bank owned property. Clean title to boot. (What can possibly go wrong, right?) The deal came together pretty quickly. We closed in just three weeks.

It is a lovely building  (purchased by a delightful client). The bank that was selling had foreclosed on a developer who (like many others) had apparently run out of money before he could complete a conversion from a rental to condominiums. Overall the place was in good shape. The first floor unit lacked finish plumbing, fixtures and  appliances on the first floor, but the second and third were pretty much rent-able and ready to go. The purchase price seems a bargain. My client is very likely to do well on this one

But in the run up to our closing, there was just one little nagging thing;  hazard insurance. It can be hard enough to shell out money for insurance under the best of circumstances, but for whatever the cause reason, we were getting towards a closing date and still no insurance.  There were distractions at work. A trip out of the country. Some delays in getting the agent to return calls. Typical sorts of things. At my insistence however, the client did finally get purchase insurance the day before closing our Friday afternoon.

Not even four hours later, I took a frantic phone call from the client. While we were at the closing table, the burglars stripped out the second floor kitchen, liberating all the cabinets and appliances!

Yes, there will be a deductible to pay. Yes, this throws her off schedule to rent that unit out for November. Certainly the hassle and aggravation levels have risen. But can you imagine the loss she would have suffered if she had not placed her insurance?

This is only the second time in 25 years that I have heard of a day-of-closing break in (I represented the seller in that one) but that is hardly the point.

Do not go to closing before your insurance is in place. Just. Don't. Do. It.  

Note: This is not so much of a problem where a Buyer uses mortgage financing to make the purchase; lenders all insist on seeing proof of insurance before they will draw closing documents, let alone fund the closing. Cash buyers however have no one to "force" them to buy the coverage.  It is up to us as lawyers and Realtors to nudge them to do so. In this instance, at least one client is glad that I did.

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