Wrapping question - insurance

[Lissy]

From: Felicity W.


My husband raised a question with me about wrapping that I couldn't answer, so here goes!
He was asking me about the process to follow if someone defaults on a wrap and they have to leave. What happens if they trash the house before leaving?
Now, I know that under landlord's insurance I'd be covered, but usually with a wrap house you would only have normal house insurance, right?
So who would pay for the damage?
Keep smiling
Felicity

 

[grebyn]

Reply: 1
From: Greg Mowat


Although we haven't had to evict our wrappee yet the research we did in advance concluded two realistic probabilities.

From my conversations with several people who have had to evict they all said similar stories. It comes down to how you conduct the eviction process.

All four that I spoke to said they all used the same strategy and that was to PAY people to Leave. On the condition that the property was in the same state as when they moved in.

Their "bond" if you want to think of it this way is their equity. If they do damage the property usually it's cosmetic (plaster, doors, windows, etc. Get a valuation done while it's in its damaged condition and use this to calculate their equity position in the property. Basically the damage done will negate any equity they may have in much greater proportion to the cost of repairing the damage. You can then repair the damage, revalue, refinance (which will include some capital gain for that period), then resell the property getting a new deposit. And basically in Vic this will be a minimum of $7000 FHOG.
It has to be some pretty serious damage to cost more than this to repair.

Also, you'd need to double check with a solicitor though. As soon as they default technically the property is yours so they may be up for criminal charges (if you want some satisfaction)

Cheers,
Greg

 

[Jacque]

Reply: 1.1
From: J Parker


From what I've read about wrapping, I would agree with Greg here about the way the eviction process is handled.
Keeping good payment records and reminding the buyers of their contractual obligations (including having to give back the FHOG if they rescind on the contract)is important. If all options have been exhausted and the buyers are defaulting and will not move out, then paying them a "removal fee" to leave the house in the original condition (say $800-1000) can work. Prominent wrappers like Steve McKnight and Rick Otton have used this strategy with success.
If this fails and you have talked to them, trying but failing to work out a solution, then you are left with little option but to take legal action against them, through a solicitor. Just think of what a bank would do in this situation, if it were YOU defaulting on your home loan. This, however, is costly and should be used as a last resort.
From my understanding, this is not a common occurrence but you do want to be prepared regardless.
As for insurance, I would assume a normal policy (that has the buyers as interested parties on it) would cover any damage, seeing as the house title is still in your name. I am not entirely sure of the insurance situation, however. What have experienced wrappers used and how do they go about obtaining insurance for the houses? Also, what insurance policies do they take out? I would appreciate feedback here!
Cheers, Jacque