Property insurance widely refers to multitude of policies or rules that can offer either protection of one’s property or liability coverage. On the other hand, force-placed property is a lender placed type kind of collateral protection insurance policy placed a lender which could be a bank or loans provider when a home owner’s property insurance is ever cancelled or even insufficient. In this episode of Note Night in America, host Scott Carson talks with Beth Boisseau-Coots from J.B. Lloyd and Associates about how property insurance and force-placed insurance are handled as a note investor. They also discuss the amounts of coverage, what you can and can’t cover, and some of the different ways to make property insurance affordable.

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How Note Investors Handle Property Insurance And Forced Placed Insurance With Beth Boisseau-Coots

Without further ado, let’s get in and bring on our special guest. This rockstar who is taking time out of their busy schedule to join us is an expert sheet. They have many years of experience in the commercial and investing experience. She is the VP of Sales for J.B. Lloyd & Associates. She was in charge of all their marketing before being promoted to Vice President. With many years of experience in commercial insurance, she works with a variety of investors, realtors, and insurance agents all across the country as well, over 400 of those. I guarantee you that number is a lot bigger. She is helping people from all across the country.

You may have seen them at a trade show, the NoteExpo or a variety of different mortgage banking conferences over the years. She calls Austin, Texas, home on the South side of Austin. That is what we like to say, to keep Austin on the weird side a little bit. You work with a variety of different investors, agents, and stuff all across the country. You are going through some stuff here.

Insurance basics for real estate investors, we did win this. We were voted the Best Property Insurance Company for Real Estate Investors for two years in a row. We are super honored about that. The big question comes to me, “Why do I need to pay for insurance?” “The insurance companies never pay. I pay all this premium and I never get rewarded for it.” The losses that this country has sustained in property damage since 2017. 2021 was actually the third biggest year in terms of losses in this country, with $145 billion from natural disasters. That was third. That was behind 2017 because if you adjusted 2017’s $140 billion for inflation, it was higher than 2021.

The first highest was in 2005. Scott can attest to this. In Texas, we had a winter storm in 2021 that, by itself, caused $10.346 billion in losses in the state of Texas. The storm was not specific. It hit other states as well, but we suffered greatly from it. Our infrastructure could not handle it. There was a lot of property damage.

We are talking about having ice for seven days longer than we are used to here in Austin, Texas, and then power being out for so many things, below-freezing temperatures, pipe bursts and things like that. I was surprised that number was not even higher.

It was a tragic event. It was one that we will not forget. 2022 came in second, as I mentioned, in terms of the number of disasters, 2020 versus 2022, and the third total behind 2017 and 2005. Here is a nice little shock on some of the disasters that we get. In Texas, Florida, Oklahoma and all the Midwest states, we see a lot of wind. I know when I lived in Dallas, we lived in this particular house for ten years and got three new roofs. Texas also sees a lot of floods, as do other states. In California and Colorado, we see a lot of fires that come along. It is not a matter of if you will need insurance. It is a matter of when. It’s important to have.

The meat of this, what you need to know, is that the world I deal with is a lot of real estate investors. Within that group, there are a lot of different subsets. We have got the note folks who are buying distressed mortgages. We have the fix and flippers, who are purchasing properties to rehab them and resell. We have got the buy and hold people. They are buying properties for the long game. They are going to rent them, pay them off quickly if they are not already paid off, and use them as an asset toward retirement, as a longer wealth-building program.

We‘ve got the people who do the wholesaling and then there is a mix of all three. I seem to notice that people often start out as note investors and then become fix and flippers, then they become landlords, and then they start doing wholesaling, then they get into doing the Airbnb, and then it starts all over again. In my observations, people do not stay in one subset. We have different insurance programs that we can use to work with people as they grow and diversify in their real estate investing.

What is a master policy as opposed to an individual policy? I do not know how far along you guys are in your journey with this, but a lot of times, people say, “I went to so-and-so and I got a policy for this property.” It is one single policy for that single property versus a master policy. It is on a reporting form, so once the policy is set up, people are able to add properties to the policy as needed and then take them off as needed. If they have 10 notes and 5 of them do not have insurance on them or cannot prove that there is insurance on them, the borrower will not get them that declarations page. They then can add them to their master policy.

If they sell the note or the owner is able to provide that proof of insurance or they foreclose on it and it becomes a rental, they are able to take it off. It is a convenient way to manage the insurance on multiple properties in one place. Typically, these master policies are administered through an online portal, which the user then has access to and can do the adding, deleting, changing, running reports, and printing out notices of insurance.

Another thing I hear a lot about from the real estate investors are, “What is the difference between a real estate investor policy, a master policy, and a force-place master policy?” There is a difference. With notes, if it is not a contract for deed, it is strictly a note. You need a force-place policy. That means that you are the lender and your borrower has not proven that they have insurance. You need the ability to put on insurance to cover your interest in that property without being the owner of the property.

A real estate investor policy is very similar to that, but you are acknowledged as the owner. With the real estate investor policy, you have general liability automatically on every property that you add to that policy. A real estate investor policy gives you that, as well as the ability to add different types of investments on. It will depend on the carrier, but you can add the fix and flips. You can add the buy and holds. Some of them will allow Airbnbs and the like.

With the force-place policy, general liability is only added to the property when foreclosure has started. Once that property is changed to a vacant property, an REO, then the GL is added. It is an important distinction to know the difference. Also, know that once you start doing the contract for deeds and your name is on that deed, you need to be looking beyond the force-placed and to a real estate investor policy because you have exposure on the general liability.

Another question I hear a lot about or I get a lot of confusion about is, “What is the difference between a basic form policy and a special form policy?” I will have people come to me and say, “I have this policy and it did not pay the claim. I am so mad.” I will look at the policy and I will see that it was a basic foreign policy. That is great. That does give you some coverage, but basic form is just basic. You are only covered for what is listed on that policy. Usually, it is the five basic perils and often, it is endorsed to include theft. Those are six things. Anything else is not covered.

You see that in the rates, in your premium. It is going to be less. Whereas a special form policy is going to cover everything except what is listed as excluded, so it is the opposite. Everything is covered unless specifically excluded in writing on this policy. You pay a little bit more, but you can sleep at night. It is important to know the difference between those two terms and what they mean and how that will affect you at the time of a claim. Basic form covers only what is listed on the policy. Special form covers everything except what is specifically excluded.

Here are some of the named perils that you will often find on a basic form policy. Those are vandalism, theft, vehicle damage, rioting, fire, smoke, aircraft damage, lighting when storm, volcanic eruption and explosions. If you look at this, what is missing? What about hail? That is one of the number one things we get in claims. It is not on here. What about flood? What about burst pipes or ordinance of law? There are a lot of things that would fall through the cracks and you would not even think about it.

This is actual cash value versus replacement costs. Now we are talking about the settlement. You have had your loss. Let’s say, you live in Dallas or Oklahoma or your properties are there. You have a tornado come through. Your roof is gone and you need to settle. The insurance adjuster comes out and you are told then, “This policy is an actual cash value policy.”

What that means is they take the replacement cost, the cost to replace or repair with labor and materials, and they deduct depreciation. It is all done through a system now. It is all seamless. The adjusters put it into the system and it spits it out. That depreciation is based on the age and condition of the item in question at the time of a loss.

This property, the note you have, the roof is 30 years old and never been replaced, that is going to be much more depreciation. That is going to come off that replacement cost. You are going to have the depreciation and then you are going to have your deductible. That is what actual cash value means. This says, “Actual cash value covers what your property was worth at the time it was damaged or stolen.”

It is the replacement cost less depreciation. Replacement cost is what it costs to replace it, regardless of the condition it was in at the time of the loss. Replacement cost is better, but it is something to be aware of and factor into your business decisions when looking at the cost versus the benefits of your insurance plan.

Co-insurance is a bad word. Nobody likes co-insurance and nobody understands co-insurance. The best way I have come to describe what co-insurance is when a property is underinsured, the carrier at the time of loss will deduct approximately the same percentage of that you are deficient underneath the replacement cost. If you are insuring it for 50% below what the replacement cost is, your settlement will reflect that 50%. There is an easy way to put it. There is a formula involved.

This says, “It is a contractual provision that often appears in property insurance contracts. It is to encourage the insured to insure the property to a stated percentage of its insurable value, usually 90%. The property’s insurable value is the actual cash value, replacement cost, or some other value described in the valuation clause of the contract.” That is a bit of a misnomer. It is going to be replacement costs. They typically want to see 90% of the replacement cost. This is not as important to know if you are strictly forced-placing. At that point, you are typically covering the interest you have in that property. That is usually the loan balance.

It is very important to know once you start foreclosures and get into that whole game. I am sure most of you know this, but if you do not, once you become a note investor, you eventually will have a foreclosure. At that point, you need to know what co-insurance means and how to insure your properties. We will not get into this too much. If anybody is interested in knowing what the co-insurance formula is, I can email this.

Here are some of the frequently asked questions that I get. One, “Can I have multiple LLCs covered on a master policy?” The answer to that is yes. Every carrier I work with allows as many LLCs as the investor owns to be covered on the master policy. They are all just added as additional named insured. How to break that up or which one to put as the primary is something you would ask your real estate attorney.

 

Two, “Can I add a lender to a specific property or properties?” I do not know how much this would affect notes. If you are dealing with wholesalers or private lenders, it may. The answer is yes. You can. “Is there a limit on the number of properties I can cover on a master policy?” There is not. I will say there is a minimum number of properties you need to have to get a master policy. That number varies with each carrier. The minimum is three with one of my carriers and then one of my other carriers, their minimum is ten. It depends.

“How do I add properties?” Most carriers and MGAs, insurance people in this world, have access to an online portal that allows you to add and delete properties as needed. “Do I need an umbrella policy?” “Can I increase the limits on my general liability or do I need an umbrella?” The answer to that would be you would need an umbrella if you feel you need more general liability coverage than the policy. Most policies have $1 million per occurrence per property and $2 million aggregate per property per year. Some of my clients feel like they need more than that. It seems like $3 million additional is a sweet spot that bumps their limits of liability to $5 million.

For those of you who are wondering what GL, General Liability, is, I do get asked this quite a bit. General liability coverage is triggered when an insured becomes legally obligated to pay damages for bodily injury or property damage. This could be the tree on the property you have invested in that has blown over in a windstorm and puts a hole in your neighbor’s house. You are legally obligated to pay that damage.

Let’s say you have got a realtor touring the property. There is a rotted step leading to the front door. Their foot punches a hole through that and they break their ankle. You are legally obligated to pay bodily injury. General liability is important, especially once you start the foreclosure or if you do the contracts for deeds because you are exposed.

Number six, “Are properties covered when they are under construction?” It depends on the policy. Some of them will. Some of them will not. If they will not, then what you need to do is carve that out and get a builder’s risk policy. This may not apply too much to the note folks. However, I have been in this game a long time and inevitably, note investors end up doing rehabs.

“Is there a vacancy limitation?” There is not. With forced-place and real estate investor policies, there is no vacancy limitation. You can have it vacant for 90 days, 190 days, or 90 years. They do not care. Finally, “Do you cover properties in Florida?” That is such a loaded question. I do get it a lot because it is a popular place to invest. We can cover them. It is not always competitive, but we can do it. The infamous words in the insurance business are, “It depends.” I like this because, living in Texas, Scott can attest, we can have all four seasons in one day. This illustrates that.

I think that is a lot of stuff. One day it is 80 degrees and then drops down to 32 degrees.

If anybody ever wants to reach out or has any questions offline that they did not think to ask or if you wake up riveted at 4:00 AM and have a burning insurance question, email me. Don’t call me. You can call me after 8:00.

You hit the nail on the head there, Beth. We, as note investors, start off with a policy forced-place and then there is foreclosure, a deed in lieu, or Cash For Keys, that property gets deeded back to the bank. We have got to change the policies that are on that.

Also, your landlord.

Not a landlord, but maybe a rehab policy or something like that. You mentioned Florida there. Is Florida one of the more expensive markets you see for investors with everything that is going on with the hurricane, or does it vary in different parts?

With Lloyd’s of London, the minimum rate for residential is $2.25 per $100 of insurance. Some of the other carriers will go a little lower, especially if you have a big portfolio or if your portfolio is spread through other states. On the low end, I would say I see it at $0.90 per $100. On the high end, $2.50 per $100.

It is somewhere between 1% and 2.5% of the asset. It is important to keep in mind, too, especially when you are buying non-performing notes or notes out there, because that is an added expense. Are folks paying that all upfront or is it paid on a half upfront or monthly basis? How can that work out so people can budget that in?

We offer monthly and annual billing. With most of our carriers and our own carrier, which we own, we own a Lloyd’s syndicate, we charge monthly or annually. We have a few carriers that will only allow a minimum of three months. That being said, most of the carriers also only charge for what you use. Even if you pay annually, you would still be refunded if you were to sell it after 29 days. You would get the rest back.

You can be able to provide proof of insurance from the borrower in a lot of cases.

That is a law. If you come back and show, “This whole time, the borrowers had this insurance. Look at this. I have proof now.” All of that has to be refunded by the investor and by us.

Forced-place insurance, before everything happened, it was in the normal cost for forced-place and a lot of banks would triple charge a lot of times whatever the costs were. That has changed with everything, too, has it? You cannot jack up the price for FPI like you used to be able to, right?

No. They should not have been doing it even then. None of our banks did, but it came to light during the financial crisis in the late 2000s. That was happening. There was not only the predatory lending but the predatory insurance. The banks, I did not have the experience with any of mine, but they were pocketing this excess premium. That is predatory in itself. You cannot do that. Dodd-Frank changed that. The CFPB will not allow that.

For those that do not know, the CFPB is the Consumer Finance Protection Bureau. You do not want a fine with the CFPB because their fines much start off pretty steep if you have a complaint from the borrower.

If you do not have a sense of humor, do not mess with them.

They do not have a sense of humor. Larry asks a question. He goes, “I have a non-performing note that is becoming performing. My borrower just signed up for insurance. Is this still a good idea to have additional insurance on the note like FPI or is it overkill?” Good question, Larry.

You would need to look at how much he has the property covered for and make sure that it is replacement costs and make sure that Larry is added as the lender on that policy.

If it is high-risk, could he still go out and having a separate policy, so there are multiple policies on the property? Is that something you see done anytime?

 

I have seen that done in some. I do not necessarily think it is something that needs to be done. What I see more often is investors, especially as they grow, will have a liability policy over all of their properties. It is just straight liability, not even connected to the master policy if they are using one.

What will that cover in a straight liability policy? What are some of the things that might cover?

It covers them if they are sued.

“Is that something you can help me with?” Larry says.

Of course. It depends.

With you guys working with so many different investors out there, some of the insurance companies will do a master policy with as little as three on average. Some will do ten. Are there some things people need to think about when buying in multiple states as far as having a point of contact within a specific amount of miles or a property manager? What do they need to keep in mind when they are looking at bonds and multiple states and insuring with you?

From our perspective, not being a note investor, we do have a buy and hold. It is always a good idea to have a point of contact, a real estate person, a lawyer and an accountant that you can trust. I am not sure you need to have a lawyer and an accountant in each and every state, although you may. You know that better than me. From the insurance point of view, I would look at the crime rate in the area where you are looking at the property.

I would look at weather patterns and losses. That is a biggie. If it is going to be something where there is a lot of crime or there are a lot of natural disasters, floods or wind, it might not be the best investment for you or it might be. It depends. I would not buy all of your properties in Moore, Oklahoma, because you are not spreading your risk. There is one bad tornado that comes and you are done.

You are buying properties that you are rehabbing on the South side of Chicago, where crime is pretty rampant.

That is not really a good idea.

Chicago, I hear some scars there and a little bit. I know I have had scars from buying on South side of Chicago and things being broken into and copper being stripped from the property 3 or 4 times in a row. It is not my favorite spot.

It had the claims.

Let’s talk about some scenarios here. Let’s say I am buying another property. The borrower is non-performing, so I have FP on it. The borrower moves out of the property. When he leaves the property, we find out that there is rampant mold or they were living in squalor. It needs a lot of rehabs. What claims will we be able to go back on or what scenarios have you guys run into before?

We have run into all of those. The first thing you would do in this situation, as soon as you find that the property has been vacated and it is appropriate to do so, is start the foreclosure process. As soon as you do that, you need to go to your insurance provider and increase the amount of insurance coverage on that property.

Some will even let you backdate the increase because you now have a claim situation. As long as the property has been on the policy or been covered with you or as long as you switch it to the foreclosed, you more than likely will have your claim paid. It is very important. Secure the property and make sure no further damage comes for the claim.

I was going to ask you if there are specific vendors you would like to recommend for folks in specific areas? I know we have used a company called DAWGS before, where they put metal doors over all the first-story entrances and windows that are coming in handy.

I do not have any per se that I recommend. I have some lawyers that I know throughout the United States that do real estate investor legal things and then different realtors that I work with as well and property managers.

People are looking to get a specific either, especially on the note investing side, you have the opportunity to buy the full payoff. Let’s run some scenarios here. Let’s say the payoff of the note is $150, but the house was only worth $100. You would not necessarily insure the property for the full payoff when the asset or the replacement cost is $100, correct?

In fact, if you over-insure, there are problems with that as well because the injury adjuster will come out and say, “This is over-insured.” The point of insurance is not to profit it is to indemnify. It is to make the person whole, so it is tricky. You have to think about how you are covering things. I always tell people, “$110 on the low side and $175 on the high side.” If you think you need to go above that. I am talking per square foot, by the way. If you feel like you need more, let’s talk because I do not want you to get into a situation where you are over-insured.

We have a lot of clients that work with lenders because we work with a lot of the folks that are doing the fix and flips and buy and hold too. These lenders do not understand this over-insurance thing. They think that it should always be the loan amount. I have to go get that approved from the carrier. It is a lot of fun, “Why do we need to ensure this 2,000-square foot house in California for $928,000?” The lender said so. This is my life.

Do not buy anything in California. It is way overpriced anyway. There are better deals elsewhere. It is getting close to it here in Austin. A question for you here. “How big of a difference in your deductibles that you are going to pay out of pocket or how much will that affect your month-to-month or year overall policy in a lot of cases? What do you see as an average across the board if someone has a deductible?”

$5,000, that deductible is the most common one I see. With strictly forced-place, I see $2,500 quite a bit as well. With forced-placed, you can go down to as low as $1,000. With a real estate investor, you cannot go lower than $2,500, and this is not wind and hail. With and hail with almost everyone is 5% or $5,000, whichever is greater of the total value. That changed in last 2021. Nobody is happy about it, including me, because that is a lot. $5,000 seems to be the most common deductible, but it brings your premiums down some if you go up to $7,500 or $10,000, or even $25,000, and it brings your premiums up if you go the other direction.

 

Depending on the type of asset class, that can have a big difference for you in what you are buying that asset for too.

How much do you want to self-insure? I want to buy shoes. I do not want to self-insure.

You want to buy the shoes, not have to sell the shoes to pay for the insurance, right?

Exactly. My husband has a very different take on this. It is all about risk tolerance.

Speaking of shoes, are you guys also providing renter’s insurance if somebody is doing land contracts or doing rent-to-owns or wraparound mortgages? Do you guys also provide that as an option?

We do not. We used to but it was not profitable for us. There is a company that does that all day, all the time. They have got it down there. That is the way to go with them.

What are the big differences you see in residential versus commercial assets? Is there anything different?

Are you thinking multifamily, is that where we are going?

Multifamily, self-storage facilities and even hotels, each asset class are a bit different, but those are the ones that we see a lot of the stuff in.

As far as insurance goes, we can get all that and we do. In terms of premiums and the ability to get it, how easy it is, apartments are hard. They are hard to insure. They are hard to underwrite. Carriers do not really like them. We have carriers that do them, but when you go into multifamily, the part where you are getting the insurance is going to be more painful than the loan itself. You will have to tell us updates on every single part of it, especially if it is older. You will have to dig in there. We need to know what losses have this property had.

We know you are just buying it. We still need to know the losses. Get all the information you can. What are the updates to the electrical, HVAC, roof, plumbing, all of it? We need to know that. If it is over 26 years old, you have to understand, that you will not be able to get, especially in Texas, a replacement settlement. It is hard to find. We have some that will do special forms, but it is hard.

It is almost easier to get it on a new build than it would be on an existing.

It is so much easier. I have carriers that will do it, but the feedback I get from people who are getting into the game, this is particularly true in Texas. They are buying these older ones. They want to rehab them and they are like, “Why do they want so much information? I am busy. I do not have time to fill all this out.” I am like, “I told you, there is some homework. In order to close, you got to have the insurance. In order to get the insurance, you got to fill this out.” You have to know that going in.

There is a question for you. “Do you do keyman policies?” I think you guys do more property versus life insurance, correct?

Yes. We do not. My brother-in-law owns a benefits company up in the Dallas area. He does that all day and all night. There are some great folks that know that part of insurance well. I would not be among them.

For those that are on here, a keyman policy is if you are the keyman in a group and you were to die, you do not want the business to go down. Many companies will put insurance policies or they call it keyman policy on the key figures of the company, so if something that does happen. Everybody gets taken care of. Investors are covered a lot of times.

It is a good thing to do. I am just not one to do it. My expertise is banks and real estate investors.

What is the craziest claim you have ever seen in your many years there at Lloyd’s?

It was not even mine, but the craziest one I ever saw was an investor. He was my client, but to becoming my client, he was sued because his tenant had bedbugs, which he treated. The bedbug treatment made the family sick, they said. They sued him and they won. That was the craziest. The one that shocked me the most that happened to one of my clients was they had to get 26 new roofs from a single storm. That hurt everybody.

There is a question here, too. “You often saw sometimes roofing companies trying to commit a little bit of fraud to get things paid for. Have you seen any of that taking place?”

We filed the claims, but once we do, it is outsourced. I do not get into that part of it. Many of my clients have their guy or their people. I think that is more of the residential homeowner’s side of things.

What is the thing that drives you insane when it comes to claims? Anything that is like, “Should you have just done this to make it a little easier on you?”

 

Nothing. I always feel bad for people because this is not something anybody wants to deal with. Claims do not bother me. Lenders from New York. I love my New York friends, but sometimes those hard money lenders can give me a hard time. I happen to be dealing with one. He is super nice, though. We have become friends. I did have to tell him to slow down because we Southerners do not understand the accent. He probably thought I was some idiot.

Let’s talk about this. If somebody is buying it up, they need to get a policy. Let’s say the borrower is not providing policy. You get a forced-place policy. That is going to be run somewhere between 1$ to 2% of the value of the property if that is the replacement costs are for you. The borrower walks away, leaves the property, we go to foreclose, take the property back, and we need to switch the policy that we have. Is that correct?

Not right away. What you do is you go online and you change the status from occupied to vacant. That indicates it is now a foreclosure. On some of them, you can change the status from forced-place to foreclosure as well. At that point, liability is added. You can also then increase the coverage amount.

We get the property rehabbed and listed and sold. Let somebody else insures it to that point.

If you keep it, if you decide to rent it, at that point, we need to switch it over to a real estate investor policy.

Potentially, 2 to 3 different policy changes depending on what your long-term strategy is.

It is not as cumbersome as it sounds.

It is an easy to jump online, change things, make notices, and update people. If properties are being improved, square footage added or properties are updated and appraisals come into the factor. It is always good to provide that to the insurance carrier to help with the cost of what is being insured, correct?

You do need to provide that, but it is a very good idea to keep it in a file on your computer because if there is a claim and there is any dispute in the amount of the settlement, you have that. That is very good evidence as to not only what the condition of the property was at the time of loss but what the appraiser valued it at.

As far as values across the corner, we have seen a big increase in the appreciation in most markets out there, but any value of a property that does not make sense to get an insurance policy or something more that you need to self-insure? I know we ran into some issues when buying cheap houses in Detroit or Ohio. It did not make sense if we had to repair it in $5,000 deductible. It just made more sense to self-insure.

Let’s say you got a house. You bought it for $25,000 and your deductible is $5,000. Your policy has a co-insurance clause in it. That means it is going to deduct that co-insurance from the claim and it is going to be the same amount as the amount underneath the replacement cost. You are going to come out negative. You are not going to get anything, so you might as well even put it on there and make a claim because they keep your claim history clean. You do not go through the rigmarole.

What do you see about history claims? As it happens, it is good, but to be taken care of. That is why you have the $5,000 deductible. Keep a lot of the petty things off there once it is something major.

It depends. You have insurance to protect you and to make you whole, so do not be afraid to use it, especially on these reporting form type policies, these master policies, your spread of risk is bigger. One claim on one property is not going to have the impact that it would on your homeowner’s policy.

Have you seen any of the major firms where they have stopped covering a new property? We were getting insurance on the house and the previous insured did not want to insure any more in Texas and other parts of the country. Have you seen that happen?

Yes, particularly in the homeowner’s market. We have seen it a little bit on the commercial side, but not as much as we have on the personal line side.

Are there questions from you guys and gals out there for Beth here? You tell she is a wealth of knowledge and wealth of experience out there. “What is the most amount of properties you have seen on a master policy with an investor before, Beth?”

I have had a few that are into the four figures. One of them, he started with three back in 2017. That has been fun.

Was he buying apartments, buying rentals or buying notes? What was his focus?

He started in notes. He has grown quite a bit.

Guys and gals, the best way to reach out to Beth is through her email at EBoisseauCoots@Gmail.com. Her number is (972) 342-4280. Is there anything you dislike about the industry?

I love the industry. It is never boring, believe it or not. I know that it is going to be hard to believe. I never know it all. There is always something to learn and two days are never alike. It is fun. It is always a challenge, but I have a question. It says, “I apologize. I am a little off your subject. We have received so many different opinions from insurance brokers, attorneys, and land trust companies on how to properly insure a property that is held in a land trust. How would you advise your clients to do it properly? Thank you in advance.” A land trust is a contract for deed, correct?

It is not a contract for deed. They are holding the property titled in a land trust. It is not a deed of trust. It is not held in an LLC or an S corporation. It is how they are ensuring it in a trust.

 

Is there a name on the deed? That is my question.

The land trust can be created easily. It is two pieces of paper to create a land trust. A lot of investors will create a land trust so that the beneficial interest in the trust is transferred versus having to go file a deed of trust to transfer the ownership. Let’s say Joseph and Richard have a property that they title it into this land trust, and then they sell the beneficial interest of the trust off to somebody else versus having to change the name. The owner of the property might change, but the title still shows, say, the 123 Main Street Trust.

Joseph and Richard, I am going to say that that is going to be a real estate attorney question. That is legal. I would not trust that with your insurance brokers. I would go to the attorneys.

The value of the property is still the same in a lot of cases because you are going to pull that up, but it is going to be different on who the insured is.

Who is going to be the named insured? Who has the insurable interest? That is the question. Without having more details of who is a member of this trust, what is the path of this trust? Do they go from this person to this person? An attorney is going to give you the best advice on that.

I am not a big fan of land trust, especially the note business, because to do any type of refinancing or selling, most title companies are going to ask you to pull that property out of a land trust to put it into a traditional LLC so they can get it financed or get it insurable. Getting it insured before you put the land trust and keeping it that way might be the better route, but that said, I would agree. Talk to your local attorney in that state and get a better of opinion on what you are doing before going there.

I think that is one of the big things I see. I have a story. An investor buddy of mine bought a property in Florida. They were all excited about buying this beautiful property, but they never checked the cost of insurance in Florida and on the water. They closed on it and then called to get the insurance after closing on the deal. That insurance has eaten up most of the profits because it has taken a while for them to foreclose on the asset.

This might be my client. I have a few that have done this in Florida.

He is one of the main investors out of the properties in Florida, but he is out of Delaware.

I felt so bad. I wanted to give him like, “Sit down because this is the best I can do.”

One thing we tell people is, “Make sure you are calling before you close on a deal. Make sure you find out what the insurance is going to cost you.” A lot of people will forget and do it at the very end in the note space, but always better to call, get the FPI, put it on first, so you know what it is going to cost you and then go from there. You can always cancel it back once the proof is provided and get a full refund back. How long does it take for folks to call to get a policy set up on a forced-place policy or traditional policy? Is it quick?

It is quick, but it goes back to it depends. Let’s say you call me and you got 5 properties that need the insurance, 15 properties total, they are not in Florida. That is easy. I send it off. I can have a quote for you in 24 hours or less. It depends. Some of it, we can underwrite in our office and those are really quick, but it depends. Some of these out-of-the-box ones take a little bit more work. It might take a week or two.

What is the ugliest property issue you have seen on a property that they had insured? Have you seen any ugly whorehouses with black mold throughout the wallpaper? What is the ugliest property you have ever paid a claim on?

I have seen some ugly ones. I have seen some really nice ones too, but in the note space, you do not always know how people live. In any forced-place situation, that can be the case. There has been some extensive water damage that has been there for a long time. It looks like squatters have been living in there. You have got growth and trash and debris. It is sad. People were living there because there was fast food trash everywhere. It is a sad state.

There is a question for you, “Living here in Texas, do you see a difference in the cost to insuring Houston with them being hit so hard with floods and rain?”

Yes. It is a tiered county. Anything that is a Tier 1 or Tier 2 county means touching the coast or touching the county line of a county that touches the coast is always going to be rated up. Houston, all of Harris County, all the coastline of Alabama, all of Florida, it does not even matter if you are on the coastline. They consider the whole state a tier. I have people say, “We are in the middle of the state.” I am like, “They do not care. You are here.”

If you are in the middle, you got sinkholes to deal with.

Tornadoes are spawned from hurricanes.

That is just another normal day in Orlando for their 3:00 PM and 4:00 PM rain shower every day.

With some of my investors, I have added a few new carriers. These were folks that are doing buy and holds, not forced-place, but then it is like, “Get your pens out where I am going to send you because this is where you need to go. They will be good. They are competitive. I cannot touch them. Here it is.”

Thank you so much for coming on the show, sharing your knowledge, some stories and insight into this aspect. I think a lot of people don’t know the difference in a lot of things since I would get people asking, “What is FPI?” I saw a little video that you saw you liked. I am letting people know a bit of this stuff. Everyone understands sticks and the value of the property, but they do not understand a lot of times, where you are buying or investing can make it a dud.

I always tell people, and I know I told you this too, Scott, but have your people, attorney, real estate agents, accountant, and insurance broker. Have people you trust around you, so you do not have to wear every hat and be an expert in everything.

 

Beth, you have a wonderful rest of your day. Thank you guys for coming out on the show. Feel free to reach out to Beth on her email at EBoisseauCoots@Gmail.com. Her phone number is (972) 342-4280. What is your favorite taco or brisket place in Austin, Beth?

You are going to laugh at me. I do not eat meat.

Torchy’s has some good veggie tacos.

I like that place. It is called Bouldin Creek Cafe. Have you been there? It is so good.

Yes, it is very good.

We will have to go have lunch one of these days. It is just down the street.

Beth, take care. We will see you later.

Thanks, Scott. Take care.

Everybody, take care.

 

 Important Links

• J.B. Lloyd & Associates
• EBoisseauCoots@Gmail.com
• http://WeCloseNotes.com
• http://NoteNightInAmerica.com

 

About Beth Boisseau-Coots

Beth Boisseau-Coots, CIC is Vice President of Sales for J.B Lloyd and Associates and specializes in insurance programs for Real Estate Investors, Lenders, and Financial Institutions. Beth has over 15 years of experience in commercial insurance and currently works with over 400 real estate investors, as well as other insurance agents who rely on her experience and expertise in the investing space.

Beth led JBL to win NoteInvestors Best Property Insurance in the annual Best of Notes for 2020 and 2021, as well as Most valuable Producer with GAIC for 2021.