Wednesday, January 12, 2011
Mortgages and Fire Insurance
Just had to tell a client today that I could not help them close a mortgage on a farm property because, unfortunately, the house and other building on the farm were not insurable. Old knob and tube wiring means it's pretty tough if not impossible to get fire insurance. And no fire insurance means no mortgage. The owner of the farm was quite upset. I had to explain that fire insurance is required because it protects the interests of the lender in the property. If a fire was to destroy the building, and no insurance was available to rebuild, the property value would decrease significantly and, in the event of a default, the lender may not be able to recoup its investment when it sells the property under power of sale or foreclosure. So electrical work should be the first order of business for owners of older homes, both for safety and for financing.