House Securing the note on Fire!

A fellow investor acquired a note for 60,000 secured by a house with a fair market valued of around 100,000. The mortgage had a balance of 145,000. So far, a normal deal like any other.

During the workout process, the house caught fire on the second floor causing a significant amount of damage. Good thing he had forced placed insurance on the property (insurance placed by the lender) for the amount of 100,000.

The damage resulted in a net insurance claim of 113,000.00, the insurance carrier paid my fellow investor 100,000.00 based on policy limits. This is not the end of the story, my fellow investor still held first position mortgage on the house, and he gained an extra 12,000 profit by approving a short sale on what was left of the property.

Every investor has a different strategy with insurance, ranging from insuring loan balance to insuring as little as the purchase price.

Every time we acquire an asset, we get insurance the same day of the purchase, we usually insure for the purchase price and workout cost, enough to secure our joint venture partner investment.