Is My Vacant Home Covered by Insurance?
"Our home is presently on the market as a short sale. Because my husband got transferred to another state, we moved out several months ago. The short sale is taking forever to close. We've been waiting since April, and now it is August. Last night, my agent called to say somebody had broken into our house and stolen all of the appliances. Will the bank pay for this vandalism? Is my 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.
Even if there was insurance coverage and the policy expired or lapsed, the homeowner is 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 told The Balance. “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 and, in some cases, the bank doesn’t report the short sale to credit bureaus.
This is why it’s in the homeowner’s best interest to acquire vacant home insurance should their home be left empty.
“The bank may choose to pay for the damages if a home is vandalized so that the short sale will be completed but that is optional,” said Bello whose law office offered clients short sale and foreclosure counseling during the financial crisis.
So, don't wait for a vacant home to be vandalized before checking your insurance policy. A little-known fact is that most homeowner insurance policies do not extend coverage on a vacant home for more than 30 to 60 days.
“If a vandalized property is insured, there’s usually a time limit to how long a home is vacant before the insurance coverage doesn’t apply,” said Bello.
This means that if you've moved out more than 60 days 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.
Because there's greater risk for a vacant home to be vandalized than an occupied home, expect to pay more for a vacant home insurance policy than just homeowner’s insurance.
“The downside is that the cost of insurance may be too high against the likelihood of vandalism or you simply can't afford the policy,” Bello said.
Short Sale or Foreclosure: Vacant Homes and Insurance
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 rare 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 the homeowner.
Types of Vandalism
Fraudsters have been known to cut off a lockbox in the middle of the night and take it home to drill out the key. Then, the thieves can return in the light of day and walk in the front door. They bring along a truck and before you can say "police," they have loaded the truck with all of the appliances.
However, a thug does not need to break into a home to cause damage. A thief can swipe, for example, the existing electrical panel and A/C compressor unit fairly easily because these items are generally located to the exterior of the home in a side or back yard.
Sometimes kids, just for twisted fun, will throw rocks through plate glass windows to watch the glass break or start a fire.
In other situations, squatters break in and set up house. These aren't the kind of people who bring a table and chairs along and use napkins. They typically sleep on the floor, may be substance abusers or don’t bother to throw empty beer bottles into the garbage can.
Tips for Obtaining Insurance
When homeowners short sell, it’s usually beause they want to prevent a foreclosure from appearing on their public record or protect their credit rating. As a responsible person, start by contacting an insurance agent for quotes on how much a vacant home insurance policy would cost.
Fees can vary from 2 to 5 times the amount of a regular insurance policy. The upside is that vacant home insurance can be purchased monthly. A policy that covers an empty house costs more than a policy that insures its contents because vandalism is very costly to fix.
Vandalism is also a problem because many banks will not pay to repair the damage. In that case, the buyer may not have enough money to pay for the home and also fix the damage especially with the proceeds from a mere FHA loan.
Ways to Discourage Vandalism
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 and that appears to invite them to rob it. 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 vs single bolt
- Wood covering on windows
- Ask police to do a run by as frequently as possible
- Hire a private security company to drive by
- Pay a house sitter
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California. Updated by Juliette Fairley June 2019