Home in short sale and sellers moved out. Homeowner insurance expiring and bank says they will get the insurance if the homeowners don't. Cost of bank getting insurance is $2500.  Should homeowners let the bank get the insurance?  Will the bank add this amount to the mortgage?  How will this be handled at closing?

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From my understanding, its the banks cost of doing business. They will force place the insurance and take it as a loss. The 1099C the seller will receive at the end of the year will reflect this amount as well as any other fees. If it is a deficiency state, they will be able to go after the homeowner and again, this amount will be included. Once you have bank approval for the short sale, it is business as usual for you and the buyers. This has been my experience anyway. Hope it helps.
Thanks, Kelly, that is what I thought but wanted someone to confirm.
The insurance is paid in advance for the year, I believe. If your client pays it directly to the insurance company, I would think the remainder would be returned. It wouldn't be involved in the closing, I don't believe. I don't know that it's going to make much difference with the short sale if the bank pays it. Of course then the bank would get the refund back. I've had clients go both ways and haven't noticed a difference in either case. I wouldn't advise them either way. Have them talk to the insurance company and make the decision themselves.
The issue I am running into is that the insurance companies are starting to refuse to cover vacant houses (even refusing to write a vacant home policy). My homeowners have been scrambling to get someone to live there temporarily or are just taking their chances with being uncovered until closing. Very scary.
Robin, Aren't the banks worried that something could happen to the house before sale and closing? They are the ones losing the collateral. Tenants policy covers only the contents.

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