DEAR BOB: Thanks for your recent suggestion that homeowners and realty investors with a net worth over $1 million can save money with an excess coverage “umbrella liability” policy for $2 million or $3 million at very low cost. However, when I contacted my insurance agent about getting an umbrella policy, he said I must first form an LLC (limited liability company) to hold title to my investment properties. I called several other insurers and they do not require holding title to investment properties in an LLC. However, they all require I give them my homeowner’s, auto insurance and investment property insurance. What is your opinion of LLCs? –Charles G.
DEAR CHARLES: Many real estate investors hold title to their investment properties in an LLC to limit their liability. An LLC offers the benefits of a corporation without the disadvantages. Consult a local real estate attorney to discuss the LLC pros and cons.
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But I have never heard of an insurance company requiring an investor to form an LLC to obtain an umbrella liability insurance policy.
Yes, you should have all your insurance policies with the same insurer. That prevents disputes between insurers in the event of a major liability loss, such as your negligence in a car crash or rental property negligence.
GOOD FAITH AND FAIR DEALING IS IMPLIED IN ALL CONTRACTS
DEAR BOB: I am trying to sell my house. The first buyer made a decent purchase offer, which I accepted. But it contained a contingency clause for the buyer’s approval of a professional inspection report. My listing agent said this is very common. However, after the report was obtained, the buyer “rejected” it although it included only a few minor problems, which I agreed to correct at my expense. They cost me around $350. But the buyer still rejected the report and insists I let him out of the sale. Considering buyers are few and far between, do I have to let him out of the contract and refund his $10,000 earnest money deposit? –Vern W.
DEAR VERN: All contracts include an implied good faith and fair dealing clause even if it is not expressly stated. If you agreed to and actually made and paid for the repairs recommended by the professional inspector’s report, your buyer has no justification to reject that report.
However, as a practical matter, if the first buyer absolutely refuses to proceed with the purchase, that ties you up without a release from the first sales contract. I suggest you consult a local real estate attorney to discuss your alternatives.
Please be aware that the first buyer will probably sue you for refund of the $10,000 although he legally is probably not entitled to receive it.
WHAT IS THE DIFFERENCE BETWEEN A CONDO AND A TOWNHOME?
DEAR BOB: What is the difference between a condominium and a townhome? Are all townhomes two-story and attached? –Vin F.
DEAR VIN: Most townhomes are part of a homeowner’s association, just like condominums. But many townhomes are in PUDs (planned unit developments) where each townhome owner owns the land beneath their unit. Townhomes come in many shapes and sizes, one or two story, attached or detached.
The new Robert Bruss special report, “The 20 Essential Questions Smart Home Buyers Must Ask to Avoid Overpaying in a Buyer’s Market,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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