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Home buyers haunted by past owners’ claims
Last Updated: May 14th, 2011
Picture it: You’re days away from closing on a new home, your financing is secured, your belongings are packed and now all that’s left is a phone call to your insurance agent to take out a home insurance policy. Then the nightmare begins.
You learn your dream home is uninsurable because the previous owner has a history of insurance claims.
Despite home inspections and real estate disclosures required by law, this can happen. Texas real estate broker Karen Wilson says she’s seen it in her state. It was particularly a problem 2002 and 2003, when home insurers in Texas stopped selling new policies after suffering heavy financial losses as the result of a sharp increase in mold and water-related claims. Since then, the market has stabilized, but if you purchase property with a history of insurance claims, it’s going to cost you. In addition, if you yourself have a less than spotless claims history, it’s going to cost you even more.
“If the seller has two dings on their report and you have one ding on your report, it can be an issue,” Wilson says.
Past home insurance claims can haunt you
How do someone else’s insurance claims on a house you don’t yet own wind up haunting you? A typical example goes like this: The homeowner discovers a leaky bathroom faucet and calls his insurance agent to discuss whether he should file a claim on his home insurance policy. Since the policy has a $500 deductible, he decides to repair it himself and skips filing a claim.
During the sale of his house, the homeowner discloses to you a previous claim for a burst water pipe in his basement for which his insurer paid, but he doesn’t bother to mention the leaky faucet. After all, it is repaired and he spent his own money to fix it. When you go to purchase a policy for this home, you’re denied based on the fact the home has had two “claims” in the past three years: the burst pipe and the leaky faucet.
“Unfortunately, consumers are not aware of that,” Wilson says.
What has happened, according to Wilson, is the seller’s insurer opened a claim file on the leaky faucet as soon as he called and then later marked it “closed, with no payment” when he decided to fix the leak himself. Insurance companies say it is standard procedure to record such telephone inquiries in this manner, and there are no laws against it.