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Old 03-07-2017, 06:33 AM   #1
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Insurance for house renovations


I am about to start a major renovation project on my home and although my chosen contractor has insurance and I have my own buildings insurance I have been advised to take out extra insurance to cover any issues. I didn't even realise there was such a thing as renovation insurance so I wonder if anyone out there has had experience of this?
I have one contact at a company called Renovation Insurance
but I wonder if anyone has any other advice or companies they could recommend? Budgets are tight so is this something I definately need?
Thanks in advance for your help/advice!

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Old 03-07-2017, 07:36 AM   #2
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Re: Insurance for house renovations


Hi Lisa,
Talk to your own insurance agent to be sure all sub-contractor policies meet with their requirements. Typically you require any sub or other worker/employee to provide a statement of coverage directly from their insurance company. Don't let anyone on your property unless you know they are covered sufficiently by your insurance or by their own. Watch out for subs that say their workers are also subs and thus provide their own insurance or opt out because they are self employed. States vary so ask your agent.

Also, be sure your bank is on board as it is their house you will be taking apart and they need to know for sure it will be going back together.

bud

Bud
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Old 03-09-2017, 11:06 AM   #3
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Re: Insurance for house renovations


Thanks for your advice Bud. There's a lot to consider but it's a good point re people coming onto the property. Projects can get so busy that there are a lot of contractors on a site at any one time so I can see it's essential that I'm covered.

Thanks again for your reply.
Lisa
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Old 03-09-2017, 04:36 PM   #4
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Re: Insurance for house renovations


Quote:
Originally Posted by LisaHolland View Post
Thanks for your advice Bud. There's a lot to consider but it's a good point re people coming onto the property. Projects can get so busy that there are a lot of contractors on a site at any one time so I can see it's essential that I'm covered.

Thanks again for your reply.
Lisa
How extensive is this renovation?

I wouldn't recommend getting your bank involved if they aren't involved already in the project. It could add headaches and expense.

There is a bit of a gray area that is better left untouched. Easier to ask for forgiveness than permission.

I'm in the mortgage and construction business. I've had clients tear houses down without notifying the mortgage company - that's a huge no no. Getting caught doing that will get the note called due.

But doing remodeling isn't going to cause you a problem as long as you are making your mortgage payments.
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Old 03-10-2017, 08:18 AM   #5
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Re: Insurance for house renovations


Your contractor is the one who should be worrying about all this. If not, and something goes wrong, it becomes a mess. It's just another example of life in general, and thank goodness it doesn't happen often.
Cordoning off work and material area, as well as good debris control, is a minor part of work, but anybody (including neighbor and postals) can walk in, fall and sue you. Your property insurance has its own lawyers who handle stuff like this.

Your contract must include contractors liability and lien waivers.
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Old 03-10-2017, 09:10 AM   #6
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Re: Insurance for house renovations


Where does the requirement to get approval from the mortgage company for a renovation come from? I've heard that before here but I still question it. Its been a while since I signed my mortgage paperwork, but I'm pretty sure I would remember that (I did read it). Maybe this varies by mortgage company? The mortgage company has a financial interest in your house, but you own it. There is a difference.
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Old 03-10-2017, 09:55 AM   #7
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Re: Insurance for house renovations


Along with that financial interest they have the right to call a loan under certain circumstances. You are ahead of me as I rarely took the time to read all of the fine print.

But, holding that financial interest motivates them to ensure at all times that the foreclosure value of a home is always greater than the mortgage and I'm reasonably certain that language is part of their fine print. If a home owner leaves halfway through a major renovation that foreclosure value is very low.


As an example, home owners often have difficulty building their own homes because the banks need to be certain they don't end up with a half built house.

As for renovations, the small stuff shouldn't worry them, but some of the gut projects we hear described on the forum I doubt would please them. Maybe we have some members more familiar with where that fine print can be found, but my bet is, it's there.

Bud
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Old 03-10-2017, 08:26 PM   #8
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Re: Insurance for house renovations


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Originally Posted by LanterDan View Post
Where does the requirement to get approval from the mortgage company for a renovation come from? I've heard that before here but I still question it. Its been a while since I signed my mortgage paperwork, but I'm pretty sure I would remember that (I did read it). Maybe this varies by mortgage company? The mortgage company has a financial interest in your house, but you own it. There is a difference.
It's very general and vague verbiage that talks about preserving and maintaining the value of the collateral. The language also reserves the right of the lender to inspect the interior/exterior based on reasonable cause.

The mortgage company isn't going to care about renovations. But they might take issue if you go on a green living kick and tear down your 5000 square foot home, that you owe a million dollars on, to build a tiny house.

The lender could call the note due based on default of the terms. Or, and this is why one should dummy up, in the event of some persnickety lender, demand you establish an escrow account along with a partial disbursal schedule requiring the extra expense of disbursals and inspections by a third party.

In any event, they are not going to know anything unless you A.) tell them B.) start missing payments and they send out an inspector or C.) tear down the house, get in a fight with the neighbors, and the neighbor snitches on you to your lender (happened to a client of my appraiser).



This is from a Fannie Mae standard mortgage instrument. Most of us have this or a similar instrument as our mortgage. Some lenders may add additional riders for what we are talking about. Banks like BofA are notorious for adding extra lender protections.

7.​Preservation, Maintenance and Protection of the Property; Inspections. Borrower shall not destroy, damage or impair the Property, allow the Property to deteriorate or commit waste


on the Property. Whether or not Borrower is residing in the Property, Borrower shall maintain the Property in order to prevent the Property from deteriorating or decreasing in value due to its condition. Unless it is determined pursuant to Section 5 that repair or restoration is not economically feasible, Borrower shall promptly repair the Property if damaged to avoid further deterioration or damage. If insurance or condemnation proceeds are paid in connection with damage to, or the taking of, the Property, Borrower shall be responsible for repairing or restoring the Property only if Lender has released proceeds for such purposes. Lender may disburse proceeds for the repairs and restoration in a single payment or in a series of progress payments as the work is completed. If the insurance or condemnation proceeds are not sufficient to repair or restore the Property, Borrower is not relieved of Borrower’s obligation for the completion of such repair or restoration.
Lender or its agent may make reasonable entries upon and inspections of the Property. If it has reasonable cause, Lender may inspect the interior of the improvements on the Property. Lender shall give Borrower notice at the time of or prior to such an interior inspection specifying such reasonable cause.
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