Middle Tennessee Real Estate

Get a CLUE

When I took a class to become an accredited buyers representative, I learned something that is not often discussed in the real estate industry. The insurance industry relies on a database called the Comprehensive Loss Underwriting Exchange (or CLUE) when they issue homeowners policies. The database of consumer claims was created so that insurance companies can see the claim history of a home when they are underwriting or rating an insurance policy.

How does a CLUE Report impact the real estate industry? When you buy a home, the company holding your mortgage will require you to have adequate homeowners insurance on the home for your protection and for their protection (like car loans requiring full coverage). People will often put off ordering that insurance until closing time draws near (I had a person who once ordered their insurance while at the closing table). While having the ability to order homeowners insurance that quickly is highly convenient and sometimes necessary, this delay could be problematic later on.

My ABR instructor told a story about his buyers who purchased a home that smelled a little smokey. He thought it was just the fireplace (heck, even the fireplace in my own causes my home to smell like a blackened log on occasion, depending on how the wind is blowing that day), so they wrote the contract and bought their beautiful home. Shortly thereafter, the gas man mentioned "the fire." They were unaware of a fire, so ordered their own CLUE Report. The CLUE Report showed a major claim had been paid. Unfortunately, the seller pocketed some of the money rather than making full repairs. The smokey odor was the burnt beams and insulation in the attic that the seller never replaced.

That example is pretty dramatic, but definitely worthy of a buyer's consideration. When a buyer doesn't order the insurance until the last minute, the insurance company may find problems several weeks later (e.g., water damage) and cancel the policy because of the history of the home. When a mortgage company learns that a home is no longer insured, they will find insurance for you. This is when it gets really scary.

One of my past clients lost their home for this very reason. They had let their policy expire and when the lender learned of this, they forced a policy on them. The new forced policy cost approximately $1,000 p/month. My sellers could no longer afford their home and were forced to sell because they got behind on their payments because of the forced policy.

So when you buy your home, order your insurance immediately after you get a binding contract. Because you don't have to pay for the policy until you close, you have nothing to lose on the front end!!

posted by Kathy T. @ 7:52 AM