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Whelp, within just two weeks of closing on our first investment property, we got a very unwanted piece of certified mail … a homeowners insurance cancellation notice.*
Ultimately, there was a relatively simple explanation, but we were completely panicked at the time and not sure why it was happening.
The letter from the homeowners insurance said that we were being cancelled due to nonpayment. There was an immediate WTF moment.
We had prepaid FIFTEEN MONTHS of homeowners insurance at settlement. Our loan officer said that three months prepayment is typically standard as “cushion” in the escrow account, but that for the first year, an additional 1-year prepayment of homeowners insurance is required.
So, where did that 15 months worth of homeowners insurance payments go?
First things first. We called our homeowners insurance and made an immediate payment. $1143 covered the first year so that we wouldn’t have to worry about losing our coverage. We decided we’d figure it out later why the insurance company didn’t receive the payment from the settlement company. The insurance company said that they never received any payment from either the mortgage company or the settlement company, so we’d need to follow up with them. But right now, our priority was making sure we didn’t lose our homeowner’s insurance.
With the payment taken care of with the insurance and a reinstatement notice firmly in our inboxes, I emailed the settlement office, and they responded right away. They said that they had mailed a check to our insurance company one day after closing. In checking their records, they did note that the check had not yet been cashed, now several weeks later.
The settlement company said that they would stop payment on the original check and immediately mail the insurance company another check. I told them that we had already made payment to the insurance company, so they could probably just send me a check. They had to verify that directly with the insurance company, which I totally understood, and then they said they mailed me a check for $1143 to reimburse me.
And so, we waited. And waited. And a week passed. And then 9 days. AND NO F*CKING CHECK.
So I emailed them AGAIN. They swore they “put the check in the mail” the day after we last spoke.
Settlement Company Incompetence?
My conclusion is that either they have the worst mailman on the planet or that this settlement company is beyond incompetent and lazy and just doesn’t do the shit they need to do. I know which one I’m leaning toward.
The settlement company said they’d stop payment on THAT check now too, and overnight me a new check via FedEx. I told her to send me that FedEx tracking number as soon as she had it. I was beyond skeptical.
But, lo and behold, the FedEx’ed check arrived the next day. We deposited it ASAP. With all the “stop payments” they had been making on missing checks related to our $1143, we wanted to make sure they didn’t accidentally stop payment on the wrong check!
So, a few lessons learned on this whole thing.
- I can’t imagine going into this whole real estate investing thing with “little or no money” as a lot of the “gurus” advertise. This issue right here, having readily available more than $1100 to avert a potential disaster, drives home how happy we are that we waited until we had more than sufficient financial reserves before investing in real estate.
- I unfortunately lost a lot of faith in the competence of settlement companies. Not one, but TWO lost checks? Related to the same client? All in a matter of a few weeks? I’m not buying it. I’m going to be monitoring our local tax records like a hawk to make sure the prepayment escrow amounts that were meant for local taxes ACTUALLY WENT TOWARDS our local taxes.
We’re glad this all worked out in the end, but damn it made our hearts race at first!
* The insurance policy is actually a “landlord” policy, which also covers our homeowners.