Continued from “D-I-V-O-R-C-E and Real Estate, Part 3”.
Even a friendly, uncontested divorce can have nasty consequences at a later time. I’ve already blogged about being “too nice” and simply subtracting the (known) mortgage(s) from an appraised value of the family home to determine the value of the equity asset. Too little Due Diligence is usually done to determine all of the financial liens against the home and the true value of the home in its current condition.
I feel fairly certain that NO Due Diligence is done to determine how risky the marital home is. Risky? What does that mean? And why should the in-spouse or out-spouse be concerned?
Shockingly, to both spouses, the home has its own “credit score”, called a C.L.U.E. report. C.L.U.E stands for Comprehensive Loss Underwriting Exchange and is a 7-year history of claims filed and paid for specific individuals, properties and vehicles. When a property owner applies for hazard insurance, the insurance company pulls the C.L.U.E report to determine how many and what type of past claims have been filed concerning that property. Is there something about this specific property which makes it catch fire, have iced-over walkways or attract hail damage? Likewise, is there a history of claims filed by the insurance applicant? Does that individual have a history of being “accident prone”? More claims = perception of more risk = higher premium costs or even denial of coverage.
How does this relate to divorce? Here are some examples:
- The in-spouse succeeded in buying out the out-spouse’s share of the marital home by refinancing in the in-spouse’s own name. The out-spouse moved on and purchased a new home. One month after closing on the out-spouse’s new home, his/her homeowner’s insurance was cancelled because the out-spouse’s insurance carrier discovered three claims on the new property by the previous owner. Now the out-spouse’s insurance costs skyrocket, if the out-spouse can find insurance at all! No insurance in place causes the mortgage company to demand that the out-spouse use their “last resort” carrier at triple the expected cost.
How can it happen that the out-spouse’s insurance on his/her new home can be cancelled after the closing? Because insurance company underwriting isn’t complete until sometimes 30-60 days after the mortgage funds are recorded.
- Prior to divorcing, one of the spouses filed an insurance claim for “hail damage” without the knowledge of the other spouse. The sneaky spouse received the insurance settlement check, hid those funds and never replaced or repaired the roof. After the divorce, when the in-spouse seeks to file a claim for the exact same hail damage, he/she learns that another claim was previously filed and paid.
- Read this one carefully; it’s complicated. After the divorce, the out-spouse remarries. The in-spouse has NOT refinanced the marital home due to lack of ability to qualify, lack of the property to appraise, or other reasons. The in-spouse files multiple insurance claims for various reasons. The insurance company raises the insurance premium as a result of higher perceived risk. Due to the still-existing tie of the house, the out-spouse and his/her new spouse are also impacted by the former spouse’s recent behavior. The out-spouse will now have to pay more for his/her insurance. This tie can last for seven years.
Why wouldn’t prudent divorcing spouses insist upon obtaining a C.L.U.E. report about the marital home?
To be continued in Part 5.
Read the Entire Series Divorce and Real Estate - Part 1 Divorce and Real Estate - Part 2 Divorce and Real Estate - Part 3 Divorce and Real Estate - Part 4 Divorce and Real Estate - Part 5 Divorce and Real Estate - Finale
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