Buying a home without getting a CLUE can land you in deep trouble.
CLUE is the Comprehensive Loss Underwriting Exchange, which tracks
insurance-claim histories of both people and properties, and it can be a
major roadblock on the highway to homeownership.
Home buyers who have never made a claim on their own policies are finding
themselves being rejected for insurance coverage on the house they’ve just
bought, because the house itself has a poor CLUE record.
If you can’t get insurance coverage, you can’t get a mortgage. Worse, if
you pay cash for a house and then get turned down for coverage you can find
yourself between a rock and a hard place — either paying excessive premiums
to get your property protected or “going bare” with no insurance protection
against a variety of perils.
“Buyers assume that because they have a good insurance history that
getting a policy on their new home will be routine,” says John Dixon, a real
estate lawyer and faculty member of the John Marshall Law School in Chicago.
“You might find, after closing, you can’t get a policy, and you’re in
breach of your mortgage, which requires you to keep the property — the
lender’s collateral, after all — protected.”
Even more shocking, adds Dixon, is the possibility of closing the deal on
your new home — with an insurance certificate issued — and then have
insurance denied after you close.
“The CLUE report is not available to the insurer until after closing, so
they typically put a caveat in the policy language allowing them to refuse
coverage should adverse information about the property be discovered after
the insurance certificate is issued,” he said.
If your own insurer refuses to cover you, then you have to scramble to
find someone who will — usually at a hefty price.
Insurance woes mount
“Mold is the big issue at present,” said Stephanie Vitacco, a top real
estate agent for Coldwell Banker in Los Angeles’ San Fernando Valley.
“People have brought so many lawsuits about mold in their homes causing
health problems that some of our biggest insurers have stopped issuing new
homeowners’ policies. It’s like asbestos was a few years ago, a fruitful
area for lawsuits and attorneys.”
Under CLUE guidelines, any homeowners’ insurance claim is logged and kept
on the database for five years. More than 600 insurers, or nine of every 10
in the industry, provide and share the data.
They report on claims for about 30 kinds of losses, from wind damage to
dog bites. A cyber visit to Choicetrust.com, a division of the credit
reporting giant Equifax, will get you a report on every claim against the
property filed in the past five years for $12.95.
But only the homeowner can get the report, so a buyer has no access to
CLUE data before owning the home.
What’s more, a seller might genuinely not know about prior claims because
they might have been made before that person owned the home.
“I have heard horror stories, especially in a fast-moving real estate
market, where a seller has not lived in the home for more than a year or
two,” Vitacco says.
In one case, the seller had been in the house for just nine months when
she put it on the market, not knowing that four years previously, her home
had been flooded.
“The claim was still in the CLUE database, but the buyer didn’t find out
until after closing, and then he had to scramble to find an insurer or lose
his mortgage policy,” Vitacco says.
Lawyer Doris Calandra found out the hard way, too. She made several small
claims for water damage to her home in Venice, Calif., and her insurance
company dumped her.
“Our house has the red cross of the Black Death on the door,” she says.
“If we wanted to sell, we could not — no buyer would get insurance until
time wipes the CLUE record clean.”
Dixon says, “The insurance companies have been getting so many water
damage and mold claims that it has became unprofitable for them, so they
have modified their policy language to exclude damage related to water.
“One of the nation’s biggest insurers stopped writing new policies in 30
states last year.”
“You should not take insurability for granted,” warns National
Association of Realtors President Kathy Whatley.
Dixon says it’s another reason for buyers to research thoroughly and get
their purchase contracts written properly. He strongly urges buyers to make
sure their agents or attorneys insert a clause in the contract giving them
the right to receive and review the CLUE report before they close their
deals.
“Simply, it’s the Realtor’s and the lawyer’s job to find out what has
happened to the property. We check for everything from radon to asbestos.
Mold and water damage are just extras on that list. Maybe the basement
floods all the time; maybe there’s a leaky roof.”
Vitacco agrees. “We use a form as part of the contract requiring the
seller to disclose any and all insurance claims made on the property in the
past five years. That flushes it out at the beginning.”
A similar technique is to require in the contract that the owner provide
a CLUE report well ahead of closing.
“People need to understand who their insurance agent works for,” Dixon
said. “Making lots of minor or frivolous claims can affect your standing,
and maybe take away your insurance or your ability to sell your home
easily.”
