Help! Just exchanged then house burnt down!

[markdee]

Insurance before settlement

Interesting to read differing views here. I queried my broker who said that in NSW insurance is required when contracts are exchanged but in Qld it's once contract is unconditional. However I am of view that I can't just go into the house and use it as mine since I am not the owner until settlement, so why should I insure it before then? OK so now onto a few questions. Since I will get insurance to save myself headaches that some other poor folks have suffered, can I get landlord insurance now before settlement (60 day settlement) or do I have to just get basic building insurance from any insurance company? I don't want to pay landlord insurance if only getting builiding and contents cover. Also can I actually get landlord insurance before tenants are in or is it best to just get building and contents cover now and landlord insurance when tenants are in? How difficult is it to get premium refund if I have to pay 12 months for basic building and then go to another company for landlord insurance? I know some knowledgeable person out there will have the answers for me Thanks


Just did google search and this was on Mortgage Choice site: "Responsibility for damage to the property remains with the vendor up until settlement or completion of the sale, but it is prudent for the purchaser to insure the property from exchange of contracts".

I assume it would be prudent for buyer if seller was uninsured but obviously if house is damanaged/destroyed, it is not in the condition expected when contracts were exchanged and buyer can rescind.

 

[Perp]

I queried my broker who said that in NSW insurance is required when contracts are exchanged but in Qld it's once contract is unconditional.

Wrong! In QLD, the property is at your risk, and thus insurance is required, from 5pm the day after contract signature. I think your mortgage broker is working on the mistaken assumption that if you had a conditional contract, you could use the condition to get out of the contract. Unless the condition is about the house burning down, that's incorrect. You can only cancel due to a finance clause, for example, based on a failure to obtain finance, not for any other reason.

However I am of view that I can't just go into the house and use it as mine since I am not the owner until settlement, so why should I insure it before then?

So that you're not obligated to buy a pile of ash. If you insure it, you still have to buy the pile of ash, but have the ability to re-build using the insurance.

I assume it would be prudent for buyer if seller was uninsured but obviously if house is damanaged/destroyed, it is not in the condition expected when contracts were exchanged and buyer can rescind.

Wrong again! The pre-settlement inspection protects you against things like the vendor removing fixtures, or the vendor (or their tenant) having damaged the property between your inspection and settlement.

Insurable events - which a fire certainly is - do not give you a right to rescind the contract. They give you - and/or the vendor - the right to make an insurance claim. Yes, if the vendor has insurance, they have a right to make a claim, but I wouldn't want to be relying on my contractual opponent holding insurance that benefits me. And don't forget that policies can differ significantly - the vendors may have a terrible insurance policy, for example, where if you had a 3 BR high spec luxury home, the insurer is only obliged to provide a 3 BR home of any description in order to fulfil their obligations under the policy. From contract signature, the insurance is for your benefit, so it's wise to get a policy that you'd be happy to have to claim on. There's also the risk that the vendor will forget to pay, or cancel early, etc. Conversely, it's wise for the vendor to maintain insurance in case the purchaser cancels the contract under a condition (genuinely, ie can't get finance), or chooses to breach.

Sorry if I'm a little blunt, but I'm concerned that the information you've provided is dangerously misleading.

See also:
Land Contracts in Queensland pp192-3
Hains Solicitors website

 

[gwk]

If you had a building and pest clause in there "to your satisfaction", would that provide any protection I wonder within the initial cooling off period?

If the building was say, a pile of ash, obviously it would not meet your structural requirements, and hence you could get out of the contract on the basis of the building inspection.

 

[markdee]

Insurance

Thanks for your insight Ozperp. We are fine about insuring the property but was confused with info which contradicted that given to us by broker (who is a Mortgage Choice consultant) and what they have on their website. Will need to do some ringing around to see if we are able to get landlord cover from now rather than settlement date so we don't have to switch companies or pay extra fees etc. Hubby was the one who wanted to go down this IP road ... why am I the one stuck with all the research and admin?

 

[Perp]

If you had a building and pest clause in there "to your satisfaction", would that provide any protection I wonder within the initial cooling off period?

If the building was say, a pile of ash, obviously it would not meet your structural requirements, and hence you could get out of the contract on the basis of the building inspection.

No, I think you have less chance of getting out due to B & P, as your remedy in such an instance is to make an insurance claim and have an entirely new home built. It's hard to argue that a brand new home, that hasn't been built yet, isn't satisfactory.

 

[wylie]

If you had a building and pest clause in there "to your satisfaction", would that provide any protection I wonder within the initial cooling off period?

If the building was say, a pile of ash, obviously it would not meet your structural requirements, and hence you could get out of the contract on the basis of the building inspection.

If the contract has gone "unconditional" then you couldn't even get out on the basis of the building inspection.

Just get the insurance already

 

[boods99]

Wrong! In QLD, the property is at your risk, and thus insurance is required, from 5pm the day after contract signature. I think your mortgage broker is working on the mistaken assumption that if you had a conditional contract, you could use the condition to get out of the contract. Unless the condition is about the house burning down, that's incorrect. You can only cancel due to a finance clause, for example, based on a failure to obtain finance, not for any other reason.

I would hazard a guess that you would be knocked back for finance should the house be burned to the ground, of course this will only help you if you have'nt gone unconditional though. It if was unconditional, the bank would still reneg on their loan offer...then you're in trouble

Boods

 

[Perp]

I would hazard a guess that you would be knocked back for finance should the house be burned to the ground, of course this will only help you if you have'nt gone unconditional though. It if was unconditional, the bank would still reneg on their loan offer...then you're in trouble

Even being conditional you could still be in trouble. If you're at high LVR, you probably will get knocked back and that will save you.

But imagine a mature couple who are upgrading and owned their previous home outright. When they bought the new one, they put in the contract "subject to sale of previous property and finance sufficient to cover the price difference". They've already sold their previous PPOR for $500K, signed to buy this new one at $650K, so the only condition now is to be able to borrow $150K to buy the new house.

$150K will almost certainly be well under the land value alone, so in such a case, the couple could be forced to buy the burned-down house for $650K, as they're unlikely to be rejected for a $150K loan - and they have to make good faith endeavours to obtain that $150K finance.

The finance clause is not the "get out of jail free" card that many seem to assume. (I know that you're not suggesting that it is, boods. )

 

[JulieW]

SO for those of us rushing to insure tomorrow who do you recommend as best coverage fot this potential or any more mundane claims?

 

[boods99]

Even being conditional you could still be in trouble. If you're at high LVR, you probably will get knocked back and that will save you.

But imagine a mature couple who are upgrading and owned their previous home outright. When they bought the new one, they put in the contract "subject to sale of previous property and finance sufficient to cover the price difference". They've already sold their previous PPOR for $500K, signed to buy this new one at $650K, so the only condition now is to be able to borrow $150K to buy the new house.

$150K will almost certainly be well under the land value alone, so in such a case, the couple could be forced to buy the burned-down house for $650K, as they're unlikely to be rejected for a $150K loan - and they have to make good faith endeavours to obtain that $150K finance.

The finance clause is not the "get out of jail free" card that many seem to assume. (I know that you're not suggesting that it is, boods. )

Good point ozperp,
I didn't take into account the LVR may well be low enough to be a non-issue.
I'm pretty sure this isn't the first time you have caught me out on some insurance thingy!!

Boods

 

[markdee]

Insurance Ok

Ok building replacement and contents insurance for carpets, curtains, light fttings is all done and dusted for contract exchange date tomorrow ... went with who we have our PPOR insured with for now as EBM wont give landlord insurance until lease is in place. Thanks for your words of wisdown Wylie and Ozperp. You probably haven't heard the last of me picking your brains though!!

 

[Mal P]

Erm... this thread has me worried. Any tips on which insurer to use until my purchase in Vic settles in January? Monthly premiums would be good!

Thanks

 

[tess85]

I found this website helpful when I was deciding on insurance
http://www.canstar.com.au/