Vacancy, Un-Occupancy,
Foreclosures
A Sign of Our Times
Presented By:
Insurance Community Center
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Disclaimer
Not only are policy forms, clauses, rules and court decisions constantly changing, but
forms vary from company to company and state to state.
This book is intended as a general guideline and might not apply to a specific situation.
Information which is copyrighted by any proprietary to Insurance Services Office, Inc.
(“ISO Material”) is included in this publication. Use of the ISO Material is limited to
ISO Participating Insurers and their Authorized Representatives. Use by ISO
Participating Insurers is limited to use in those jurisdictions for which the insurer
has an appropriate participation with ISO. Use of the ISO Material by Authorized
Representatives is limited to use solely on behalf of one or more ISO Participating
Insurers.
The author and any organization for which this seminar is conducted shall have
neither liability nor responsibility to any person or entity with respect to any loss or
damage alleged to be caused directly or indirectly as a result of information
contained in this book.
Contact Info: 714.206.9583
www.insurancecommunitycenter.com
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What This Course Will Cover
1. Background on the current crisis affecting
homes and commercial buildings
2. New realities and New Challenges
3. Insurance issues relating to vacancy and unun-occupancy
4. What are the solutions?
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Background
The crisis that has swept the nation
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What Happened?
It’s a Complex Question
 Crisis for both the “homeowner” and business.
 Homeowners losing their homes
 Homeowners filing personal bankruptcy
 Businesses going bankrupt and foreclosing on
properties
 Property owners supporting vacant buildings
 Banks foreclosing and taking on liabilities or NOT
foreclosing
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1. Sub-Prime Loans
Enticement
2.
The economy took
a downturn
3. Foreclosures and
Bankruptcy
Wall Street Panicked
5. People Get
Desperate/Squat
Burn it
Strip the Property
4. Mortgage Company
and Bank Failures
Banks Left Holding the
Bag
6. Insurance Company
New Exposures
New Claims
New Underwriting
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New Realities & New Challenges
Foreclosures and Bankruptcy
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Foreclosures
(International Business News)
 Total foreclosures in 2009 reached 2.8 million, a
21 percent increase over 2008 and a 120
percent rise compared to 2007, according to
foreclosure sales Web site RealtyTrac in a yearend report released Wednesday.
 $1,900,000 in foreclosures in first six months of
this year
 Number of Foreclosures /state
www.ResponsibleLending.org
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Foreclosures
(International Business News)
 The 10 states with the highest foreclosure
rates in 2009 were: Nevada, Arizona, Florida,
California, Utah, Idaho, Georgia, Michigan,
Illinois, and Colorado.
 California, Florida, Arizona, Illinois account for
50 percent of the foreclosures. The other 10
states with the largest numbers of
foreclosures are Michigan, Nevada, Georgia,
Ohio, Texas, and New Jersey.
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Renting becomes a reality
 The number of renters in America is on the
rise as foreclosures continue to take out
homeowners everyday.
 In fact, a staggering 37.1 million housing units
were occupied by renters in the second
quarter, up from 34.3 million units in 2006,
per Census Bureau data.
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National Association of Realtors
National Commercial Vacancy
Office space
16.7%
Industrial
vacancies 13.9%
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Types of Foreclosures
 Counties Foreclosures
 County can foreclose on the home for
unpaid property taxes, and the mortgage
company will be pursuing a lawsuit for the
defaulted mortgage contract
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Judicial Foreclosure
 Both judicial and non-judicial foreclosures are
permitted by law depending on the state
 This where the lender needs to file an official
complaint against the borrower
 This complaint should be approved by the
local courts
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Non Judicial Foreclosures
 These foreclosures come about because of
language contained in the mortgage
agreement whereby the lender is authorized
to sell the property if there is a delinquency in
payments.
 Normally, non-judicial foreclosures are not
utilized frequently and some states even
prohibit them.
 That's why it's important to know all of your
state's foreclosure laws.
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ACORD Application 2009/10
 General Information
 Has applicant had a foreclosure,
repossession, bankruptcy or filed for
bankruptcy during the past five (5) years?
 Has applicant had a judgment or lien during
the past five (5) years?
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ACORD Application 2009/10
 DURING THE LAST FIVE (5) YEARS [TEN (10) YEARS IN
RHODE ISLAND], HAS ANY APPLICANT BEEN INDICTED
FOR OR CONVICTED OF ANY DEGREE
 OF THE CRIME OF FRAUD, BRIBERY, ARSON OR ANY
OTHER ARSON-RELATED CRIME IN CONNECTION WITH
THIS OR ANY OTHER PROPERTY ?
 (In RI, failure to disclose the existence of an arson
conviction is a misdemeanor punishable by a
sentence of up to one (1) year of imprisonment.)
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Commercial
“Foreclosures/Bankruptcy”
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Commercial Hardships

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
Massive and rising unemployment levels
Reduced consumer spending,
Frozen credit markets
Internet revolution all mean that shopping
center and office property demand have
fallen.
 http://www.realtytrac.com/content/newsand-opinion/foreclosures-are-commercialproperties-next-4971
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Commercial Hardships
 As chain stores have gone out of business,
massive volumes of retail space have become
available.
 Current tenants bartering for lower prices
 New Debt
 Less Equity
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Commercial Building Vacancy /
Unoccupancy Causes
Business reduces – use of
building reduces
Business fails – building
retained but not used
Tenants move out and not
replaced
Loan default – foreclosed by
mortgagee
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Insurance issues relating to
vacancy and un-occupancy
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Homeowner Defaults Payments to the Bank
Short Sales or Bank
Forecloses or Not Forecloses
Homeowner may declare
Bankruptcy
May vacate OR may stay
(Squat) OR may burn it down
Homeowner Vacates Home
Strip Their Home
Jingle Mail
Cash for Keys
Insurance
Don’t Pay for Coverage
Cancel Coverage
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Bank Must Place Coverage
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Short Sale vs. Foreclosure
 Short Sale
 A short sale is when the
bank agrees to take less
than what's owed on the
house.
 Borrower still owns the
home
 Typically must list for at
least 3 months
 Borrower must still carry
insurance
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 Foreclosure
 A foreclosure is where the
bank taken back the
property
 REO Real Estate Owned
 Could still have a
deficiency judgment after
sale
 Bank insures property
 Problem arises if borrower
is squatting
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Homeowner Defaults Payments to
the Bank
Bank
Forecloses
Bank Does
Not
Foreclose
•
•
•
•
•
Must evict the homeowner
Must provide the insurance
Must take it into inventory
Must manage the property
Must sell the property
• Many choosing NOT to foreclose
• Allowing the debt to accrue
• Adding the insurance payments to
the delinquent payments
• Do not want to take on the liability
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New Realities
 Cash for Keys
 Done by some banks for homeowners to receive cash in
exchange for surrendering the keys and vacating with the
stipulation that the home will be left in good condition and
cleaned.
 Jingle Keys
 Jingle mail is a phrase used to describe the envelopes
containing house keys, which are mailed by homeowners to
mortgage lenders, without authorization from the lender.
Home owners decide to mail the house keys to the lender
because the owners believe their home is no longer worth
keeping, and they want to give the home to the lender.
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Vacant Exposures
 A vacant properties are an "attractive
nuisance" that appeals to vandals and thieves
 Vacant homes also present numerous liability
issues
 "Kids climbing over a dilapidated fence
could get hurt, or teens partying in a vacant
home could fall and slip
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Who is occupying the foreclosed
homes?
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
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
Homeowners squatting in their own home
Homeless moving into vacant homes
Renters whose landlords were foreclosed on
Gang members, using empty houses as crash
pads and for drug stashes
 New term: Rent Skimmers
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Glut of Foreclosed Homes Encourages Scams,
Desperation
3/29/09 PBS News
 With the national foreclosure rate still
climbing, some chose to live in foreclosed
homes while others have been the victims of
"rent skimmers," people who pretend to own
a foreclosed property and scam tenants out of
thousands of dollars in security deposits and
fees. Special Correspondent Jeffrey Kaye
reports from Los Angeles
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Rent Skimming
 DET. ERIN CAMPHOUSE, Los Angeles Police
Department: Rent skimming, it is epidemic in the city
of L.A. right now.
 DET. ERIN CAMPHOUSE: They might drive a
neighborhood and see three homes in that area, write
down the addresses, and then go back and advertise
those homes for rent. And when they advertise them
for rent, it's usually a monthly rental price that's
probably under market.
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Bank Insurance (Title Insurance) IRMI
 Title insurance in the United States is indemnity
insurance against financial loss from defects in title to
real property and from the invalidity or
unenforceability of mortgage liens. Title insurance is
principally a product developed and sold in the United
States as a result of the comparative deficiency of the
U.S. land records laws. It is meant to protect an
owner's or a lender's financial interest in real property
against loss due to title defects, liens or other matters.
It will defend against a lawsuit attacking the title as it
is insured, or reimburse the insured for the actual
monetary loss incurred, up to the dollar amount of
insurance provided by the policy.
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Bank Insurance—Mortgagee
Impairment Insurance
 Policies are one way to insure a customer's
property when the customer fails to obtain
insurance
 The amount of coverage is usually the amount
of the outstanding loan.
 Banks can (in most states) charge the
premium back to the customer's account.
 Most forced-placed policies are on a reporting
form.
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Bank Insurance—Mortgagee
Impairment Insurance
 Usually written on independently filed forms
 The policy may be written to cover loss due to
required perils only (that is, only those perils for
which the borrower is required to maintain insurance
on the mortgaged property—fire, explosion, etc.) or
extended to cover loss due to certain "non-required
perils" (such as earthquake) as well.
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Bank Insurance—Mortgagee
Impairment Insurance
 Often, mortgage impairment policies also
provide liability insurance for certain liability
loss exposures of the lender that are
associated with servicing the mortgage, such
as
 liability for mishandling of escrowed
insurance premiums and causing a lapse of
the borrower's coverage,
 failing to pay taxes on behalf of the
borrower
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Homeowner’s Property Coverage
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Homeowners Insurance and
Vacancy or Un-Occupancy
 Intended for an owner who is in residence
 Typically the coverage requires they occupy
within 30 days of the inception of the policy.
If an insured does not occupy then coverage
would be jeopardized.
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Homeowners Insurance and
Vacancy or Un-Occupancy
 CRUCIAL: If the home is NOT occupied the
insurance company must be made aware
 Reluctance because company might cancel
 Reluctance because policy might cost more
 Reluctance because might lose the client
 Reluctance because don’t have a market
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Vacancy/Un-Occupancy Situations
 Secondary Home
 Seasonal Endorsement
 Rental Property
 Typically a Dwelling form unless occasional
rental
 Owner intends to occupy but is making
improvements before they move in
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Vacancy/Un-Occupancy Situations
 Spec Home
 Question on Application—For Sale?
 Occupied and doing renovations
 Unoccupied and doing renovations
 Is it under construction or not?
 Applications may specifically state that the
home must be occupied within 30 days or NO
coverage
 Is the insured aware…is the company aware
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Vacancy/Un-Occupancy Situations
 Home becomes vacant or unoccupied after the policy
has been issued
 Has the insured informed the agent
 If the agent was informed they MUST notify the
company
 The company will probably cancel the coverage
 Often times notice of cancellation has been sent
for non-payment and that is how the agent finds
out
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Vacancy/Un-Occupancy Situations
 Client may contact the agent and put them on
notice that their home is going to be
foreclosed.
 They may ask what they are supposed to do in
terms of insurance. GOOD QUESTION
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Process of Review
 Underwriting Guidelines
 Application
 Policy
 Definitions
 Coverage A Dwelling Coverage
 Coverage B Other Structure Coverage
 Causes of Loss and Vacancy
 Vandalism
 Other
 Deductible
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Underwriting Guidelines
OCCUPANCY REQUIREMENTS
 The named insured must occupy the
described premises as his principal residence.
 The building must be occupied by the insured
exclusively for residential purposes
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Underwriting Guidelines
 This is an excerpt from “UNACCEPTABLE
RISKS”
 Vacant buildings unless recently purchased
and to be occupied within 30 days.
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Application




What does it say
Who filled it out
Who signed the application
Was there any discussion about “unoccupancy or vacancy”
 Does it say the insured must occupy in 30 days
 Insurance companies rescinding coverage—
what does that mean?
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ACORD Application
 OCCUPANCY
 UNOCCUPIED
 OWNER
 TENANT
 VACANT
7. IS THE DWELLING / HOME FOR SALE? (no
explanation required)
(Some homes are continuously on sale)
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ACORD Application



APPLICANT'S STATEMENT: I HAVE READ THE ABOVE APPLICATION AND
ANY ATTACHMENTS. I DECLARE THAT THE
INFORMATION PROVIDED IN THEM IS TRUE, COMPLETE AND CORRECT
TO THE BEST OF MY KNOWLEDGE AND BELIEF. THIS
INFORMATION IS BEING OFFERED TO THE COMPANY AS AN
INDUCEMENT TO ISSUE THE POLICY FOR WHICH I AM APPLYING.
Producer Signature
Producer Name
State Producer License #
Applicants Signature
Date
National Producer #
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ACORD Application
 How many times has the applicant NOT signed
the ACCORD application
 How many times has the agent signed the
application on behalf of the insured. I hope
NEVER!
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ISO Homeowners Definition
8."Residence premises" means:
a. The one family dwelling, other structures,
and grounds; or
b. That part of any other building;
where you reside and which is
shown as the "residence premises"
in the Declarations.
Requires residency of Named Insured
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ISO COVERAGE A – Dwelling
We cover:
1.The dwelling on the "residence premises"
shown in the Declarations, including structures
attached to the dwelling; and
Coverage could be compromised if Named
Insured is not in residence
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ISO COVERAGE B – Other Structures
 We cover other structures on the "residence
premises" set apart from the dwelling by clear
space. This includes structures connected to the
dwelling by only a fence, utility line, or similar
connection.
Coverage could be compromised if Named
Insured is not in residence
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ISO Glass or Safety Glazing Material
We cover:
a. The breakage of glass or safety glazing
material which is part of a covered building,
storm door or storm window; and
b. Damage to covered property by glass or
safety glazing material which is part of a building,
storm door or storm window.
This coverage does not include loss on the
"residence premises" if the dwelling has been
vacant for more than 30 consecutive days
immediately before the loss. A dwelling being
constructed is not considered vacant.
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ISO Homeowner’s Perils of
Insurance
COVERAGE A – DWELLING and COVERAGE B –
OTHER STRUCTURES
We do not insure, however, for loss:
2. Caused by:
d. Vandalism and malicious mischief if the
dwelling has been vacant for more than 30
consecutive days immediately before the
loss. A dwelling being constructed is not
considered vacant;
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Direct Writer Form
“Vandalism or Malicious Mischief or Arson if the dwelling is vacant”
 We do not insure loss or damage directly or indirectly caused by,
arising out of, or resulting from:
 Vandalism or malicious mischief if
 The dwelling has been vacant beyond a period of 30 days or no
person has actually legally lived in the dwelling for a period of
30 days or
 Committed by any person who is regularly residing on the
residence premises or
 Arson, whether a result of vandalism or malicious mischief if the
dwelling has been vacant for a period beyond a period of 60
consecutive days
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ACE
 If your residence has been vacant for more
than 30 consecutive days immediately before
a covered loss, we will apply the greater of the
deductible amount shown in the Declarations
or:
(a) 5% of the Dwelling limit for a dwelling
where the loss occurs; or
(b) 5% of the Personal Property limit or 5% of
the Building Additions And Alterations
limit,
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ACE
 This deductible applies to your residence, personal
property and Extra Benefits.
 If your residence is increased because of d. Full
Replacement Cost Protection below, the deductible
will be based on the increased limit.
 This vacancy deductible does not apply if we give our
prior written consent.
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Solutions
 ISO has no endorsement for vacancy on a
homeowners policy
 Insurance companies may have an
endorsement such as State Farm
 “However, by purchasing an endorsement,
homeowners "buy back" that exclusion for
a cost for such an endorsement is usually
under $100, and coverage lasts for the
duration of the policy period” (State Farm
Web Site)
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Solutions
 Some companies will “allow” the home to be
vacant if they are notified and will charge an
additional premium.
 Other companies such as Farmers, who do
not write vacant homes, have a relationship
with Foremost Insurance who writes vacant
homes up to a specific limit
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Solutions
 Specialty companies are emerging that write
vacant homes. Check out
http://www.vacanthomeinsurancenow.com/p
rograms
 One thing for sure. DO NOT expect your
homeowners policy to respond if the company
is not notified or it is unendorsed
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Commercial Property Coverage
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Process of Review
 Application
 Policy
 Definitions
 Building
 Causes of Loss and Vacancy
 Vandalism
 Other
 Deductible
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ISO 6.Vacancy—Description of Terms
a. Description Of Terms
(1) As used in this Vacancy Condition, the term
building and the term vacant have the meanings
set forth in (1)(a) and (1)(b) below:
a) When this policy is issued to a tenant, and
with respect to that tenant's interest in
Covered Property, building means the unit or
suite rented or leased to the tenant. Such
building is vacant when it does not contain
enough business personal property to
conduct customary operations.
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ISO 6.Vacancy—Description of Terms
(b)When this policy is issued to the owner or general
lessee of a building, building means the entire
building. Such building is vacant unless at least 31% of
its total square footage is:
(i) Rented to a lessee or sub-lessee and
used by the lessee or sub-lessee to conduct
its customary operations; and/or
(ii) Used by the building owner to conduct
customary operations.
(2)Buildings under construction or renovation are
not considered vacant.
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ISO 6.
Vacancy Provisions
If the building where loss or damage occurs has been vacant for
more than 60 consecutive days before that loss or damage occurs:
(1) We will not pay for any loss or damage caused by any of the
following even if they are Covered Causes of Loss:
(a) Vandalism;
(b) Sprinkler leakage, unless you have protected the system
against freezing;
(c) Building glass breakage;
(d) Water damage;
(e) Theft; or
(f) Attempted theft.
(2) With respect to Covered Causes of Loss other than those
listed in b.(1)(a) through b.(1)(f) above, we will reduce the
amount we would otherwise pay for the loss or damage by 15%.
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Vacancy Permit CP 04 50 07 88
Issue:
 The insured has a vacant building to insure.
 The BPP Coverage Form eliminates
coverage for certain specified types of
losses and reduces payment by 15% for
others.
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Vacancy Permit CP 04 50 07 88
Solution:
 This endorsement eliminates the vacancy
limitation condition in the Business and Personal
Property Coverage Form.
 Allows coverage to continue at full value when a
building is deemed vacant beyond 60 days.
 Can be used to cover vandalism and/or sprinkler
leakage.
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Vacancy Changes CP 04 60 10 00
Issue:
 The insured has a partially occupied
building to insure.
 The BPP Coverage Form eliminates
coverage for certain specified types of
losses and reduces payment by 15% for
others unless the building is occupied or
31% is rented.
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Vacancy Changes CP 04 60 10 00
Solution:
 This endorsement may be used to reduce
the occupancy requirement down as low a
10% which then allows coverage to
continue with reduction of loss payment or
elimination of certain covered perils.
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Summary
 Ask the right questions of your insured
 Make certain the application is complete, correct,
signed by the insured, and explained to the insured
 If you are notified that an insured’s property is being
foreclosed on; vacant; or not vacant and the insured is
still residing there inform the insured of their
obligations
 You must notify the insurance company even at the
risk of having to write the coverage with a different
carrier at a higher rate
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