Is Your Vacant Home Covered by Insurance?
Under a typical mortgage contract, the homeowner is obligated to maintain insurance. Legally, until the mortgage company forecloses or a short sale is complete, the homeowner is liable for damages incurred during a robbery or vandalism in a vacant home unless there’s insurance coverage.
Standard Policy Coverage for Vacant Homes
Don't wait for a vacant home to be vandalized before checking your insurance policy. A little-known fact is that most homeowners insurance policies do not extend coverage on a vacant home for more than 30 days. This means if you've moved out more than a month ago, your home may no longer be insured, even though you may have paid the premium for your insurance policy. Read the fine print of your policy to be sure.
Why Vacant Home Insurance Matters
Even if there was insurance coverage and the policy expired or lapsed, the homeowner will then be liable to fix the damage themselves in the event of vandalism, according to Mark M. Bello, an attorney in West Bloomfield, Michigan.
“If they don't fix the damages, it imperils the short sale,” Bello said. “The short sale does not benefit the bank, which means the bank could at any time decide they want to foreclose.”
A short sale is much less stressful than foreclosure for the homeowner because it has less effect on individual credit reports. To avoid anything that could endanger the short sale, a homeowner should acquire vacant home insurance if they will leave their home empty for any extended period.
Vacant Homes and the Bank
In short sale situations, often the bank will send out a representative from a preservation company to determine whether the home is vacant. Even if you just moved down the street, these people will change the locks and notify the bank that the home is vacant.
It’s unusual for banks to insure a property they don't own and are selling at a loss, but in rare cases, the bank could secure insurance on your home’s mortgage to cover vacancy and vandalism. Keep in mind, however, that the bill for the bank’s mortgage coverage may very well be charged back to you.
Types of Vandalism
Thieves have been known to cut off a lockbox in the middle of the night and take it home to drill out the key. Then they can return in the light of day, bring along a truck, walk in the front door, and load it with all the appliances.
However, someone doesn't need to break into a home to cause damage. A thief can, for example, swipe the existing electrical panel and air-conditioning condenser fairly easily because these items are generally located outside the home in a side or back yard.
Sometimes kids will start a fire or throw rocks through plate glass windows just to watch the glass break. In other situations, squatters break in and set up house. They typically sleep on the floor, may be substance abusers, or don’t bother to throw empty beer bottles into the garbage can. Without vacancy insurance, these costs could all fall on you.
Tips for Obtaining Insurance
When homeowners short sell, it’s usually because they want to prevent a foreclosure from appearing on their public record or protect their credit rating. Vacancy insurance will help you achieve this goal. Start by contacting an insurance agent for quotes on how much a vacant home insurance policy would cost.
Premiums can be significantly higher than on regular insurance policy. A policy that covers an empty house costs more than a policy that insures its contents because vandalism is very costly to fix. Many banks will not pay to repair damage, though, so the insurance is a cost you have to deal with. The upside is that vacant home insurance can be purchased monthly.
Ways to Discourage Vandalism
On top of insurance, it's important to take steps to prevent vandalism while your house is vacant. People who gain entry into another person's property illegally tend to choose the path of least resistance. They want to access the home that is the easiest to break into. Here are some ways to discourage vandalism:
- Have a friend or relative check on the home daily and pick up mail or newspapers that land on the lawn or steps.
- Put a sign rider on top of the For Sale sign that says "By Appointment Only" or "Do Not Disturb Occupant."
- Ask a neighbor to park a car in the driveway.
- Install security lights that are activated by motion.
- Set up a lamp connected to a timer that turns on and off at specified times during the day.
- Install video cameras inside and outside.
- Install a security alarm.
- Double-bolt lock the doors.
- Put wood covering on windows.
- Ask the police to drive by as frequently as possible.
- Hire a private security company to drive by.
- Pay a house sitter.
The Bottom Line
As long as a property is titled to you, it's your responsibility for the property. Don't assume your bank or your existing policy will cover damages if you move out before the home is sold. Take the necessary steps to stop vandalism and protect one of your most important assets.