An insurance contingency is a requirement that a home buyer apply for and obtain homeowner’s insurance. This is typically added as a condition in the home sales transaction contract. The condition will usually be fulfilled during the escrow process.
The party requesting the contingency may vary. In some cases, it may be the seller who requests the contingency in the contract. In other cases, it may be a mortgage lender who is requesting the buyer to submit to a contingency requirement (that is, they will not issue a mortgage loan unless the buyer first secures some type of homeowner’s insurance).
Homeowner’s insurance provides protection for things such as property damage, fires, natural disasters, and other issues. For instance, a certain area might be prone to issues such as hurricanes, earthquakes, or mold. In such cases, the homeowner might want to take out a property insurance coverage plan that covers these types of problems.
However, even in high risk areas, some homeowners have been denied insurance coverage in connection with these types of issues. This can affect the overall condition, value, and worth of the home in the long run. Thus, it may be of particular interest to ensure that the owner of the home will have some form of insurance.
A contingency means that the contract is “contingent upon” or dependent upon the parties fulfilling the conditions and requirements in the terms. Thus, if an insurance contingency is not met within the specified time period, it can have the effect of:
- Preventing the sale or transaction from being closed
- Delaying the sales and closing process
- Causing the breaching party to owe damages to the other party
- Requiring the home buyer to obtain forced-placed insurance
Thus, it is important to understand all of the responsibilities and consequences associated with any type of contingency. It may be necessary to work with a real estate agent or a lawyer during the negotiation phases of a sale, especially if there will be contingencies involved. This can help ensure that the process runs smoothly and that both parties understand their rights and obligations under the real estate contract.
Real estate contracts may often involve various contingencies, such as an insurance contingency, a financing contingency, and other terms. You may wish to hire a qualified real estate lawyer if you need assistance with any real estate issues. Your attorney can provide you with legal advice and guidance during negotiations to ensure that your rights and interests are protected. Also, if you need to file a lawsuit over an insurance contingency issue, your attorney can provide you with legal representation during the court meetings.