Insurance and TIC
Home owners insurance is a shared expense among TIC owners. Typically each co-owner contributes a monthly payment to a shared bank account from which payments are made for group expenses such as property taxes, insurance, large repairs, and maintenance.
It is important that all TIC owners are listed on the insurance policy. A policyholder, when filing an insurance claim, must prove there was damage or loss and also show proof that the property lossed or damaged belonged to the owner. If one or more co-owners in a TIC is not listed on the insurance policy as an owner, the insurer could argue successfully that they are not entitled to compensation for any loss or damage, even though they are co-owners of the property.
Good, affordable (as relative a word as exists in San Francisco) home owners insurance can be difficult to find in California. High insurance payouts for water related damage and other disasters has made insurers even more prudent. Individuals who have filed past claims may find insurance premiums cost prohibitive or even unavailable as insurers are increasingly more aware of people with a propensity to file claims.
As securing home owners insurance may impact the owners ability to obtain mortgage financing, TIC owners should screen their fellow owners -and any subsequent owners- before entering into the TIC with them. If one owner has a history of filing claims (legitimate or not), it may impact the insurability or the terms of the entire group. Also note that when a TIC owner resells his/her property, the new owner will be listed on the insurance policy. If that new owner has a loss history, the TIC owners could see an increase in their premium at renewal simply due to the presence of the new owner.
In order to ensure financing approval and avoid wasting time and money, buyers, sellers, and co-owners may want to provide C.L.U.E (Comprehensive Loss Underwriting Exchange) Reports to each other. C.L.U.E Reports are pulled from national databases that track the loss history of individuals and properties for the past five years. These reports are used by the insurer to determine rates and insurability of a given property or owner.
Buyers will want to know the C.L.U.E history of both the property they are buying and the co-owners with whom they are buying. Sellers may want to voluntarily provide it to the buyer to help expedite the financing process. Most mortgage financing contains a homeowners insurance approval contingency. As such, inability to secure home owners insurance could derail financing. If the seller provides this info upfront, it may help avoid delays.