The Importance of Documentation When Selling Your Home With An Open Insurance Claim
By Kyle Hyman
Selling your home during the pendency of an open homeowner’s insurance claim can raise a lot of legal questions. Whether you intend to retain the right to receive insurance benefits under the policy or assign them to the new buyer, it’s important that you document the damages and make necessary disclosures to protect your legal and financial interests. Here are some pointers on what to document when selling our home with an open insurance claim to ensure you recover what you are owed.
First, it is important to disclose to your realtor that you have an open insurance claim before listing your home. Concealing damage or known problems at your property from potential buyers can land you in hot water. Generally, Florida law requires that sellers disclose facts or conditions which are not readily apparent and that have a material impact on the value and desirability of the property. Therefore, it is good practice to complete a seller’s disclosure form to clearly document to the buyer that there is unrepaired damage to the property. Notice of an open insurance claim should also be given to the buyer because it may affect their ability to get new insurance while there is an open claim.
If the buyer is aware of the open insurance claim and still wants to move forward with the sale, you have a few options. For instance, you may choose to assign the insurance claim to the new buyer so that they can receive the insurance proceeds directly from the insurance carrier. Post-loss assignments of insurance claims in connection with the sale of a property are not overly complicated, but it is always best to have an attorney review the agreement prior to signing. Failure by the parties to clearly convey their intent to transfer the right to receive benefits could render the assignment unenforceable and take away the buyer’s standing to obtain the benefits owed in court.
Another option is to maintain the insurance claim in your name and sell the property for a reduced amount. If you decide to go this route, be sure to clearly state in the sale documents how much you are reducing the price of the home for due to the unrepaired damage. This will help establish a more exact estimation of the cost to repair and substantiate the basis for the reduction in price. Once again, a seller’s disclosure form comes in handy to show (1) the buyer was on notice of the damages at the time of the sale and (2) that the cost to repair was contemplated in the reduced sale price. Your realtor should also be able to provide you with comparable sales in your area to help determine the fair market value of your home had repairs been performed.
You will also want to have a general contractor, professional estimator, or an experienced insurance appraiser evaluate the damages prior to the sale. A detailed, line-item estimate will verify the cost to repair and be useful when trying to determine the actual cash value of the damaged property. Similarly, if your insurance carrier is disputing coverage or the cause of the loss, you may want to have a licensed engineer inspect your property. Determining cause of loss is crucial to coverage disputes and you may not have an opportunity to evaluate the damages again once the home is sold and repairs performed by the new buyer.
As Denzel Washington so perfectly stated in the movie Training Day, “It’s not what you know, but what you can prove.” Properly documenting damage and the terms of the sale agreement can substantially affect the outcome of your insurance claim. When in doubt, consult an attorney to discuss your legal rights and obligations to make sure you are adequately protecting your interests.
Kyle Hyman, Esq.
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