Searching for Clues: Finding Homeowner’s Insurance
By Brian Block
REALTORS® should educate both their buyers and sellers about the C.L.U.E. database and potential problems finding homeowners insurance. C.L.U.E. stands for Comprehensive Loss Underwriting Exchange and is a collection of homeowners insurance claim histories enabling insurance companies to access five years worth of prior claim information to evaluate risks. The database is maintained by Choice Point Inc., a private Georgia firm, and contains over 40 million claims records on houses in all 50 states. Over 90 percent of insurers providing homeowners coverage provide data to the CLUE system. Sellers of properties who never made an insurance claim but only lived in the house for a short period of time may be unaware of potential problems that exist due to claims made by a prior owner. Another problem arises with “zero-dollar” claims which refers to claims that did not result in a loss for the insurer but are still being listed as a claim in the CLUE database, such as a homeowner calling the insurance company about possibly filing a claim, even if the claim is never filed.
In the same way that having a bad credit record affects your ability to finance a home, negative information in the CLUE database can affect whether a purchaser can get homeowners insurance and at what cost. VAR’s Commonwealth Magazine recently reported that many homebuyers are facing the grim reality of the decreasing availability and affordability of homeowners insurance. When a homeowner applies for insurance on a property, the insurance company will usually check the CLUE database to see what claims or reports of damage are on file about the property, and may charge higher premiums or possibly decline to offer insurance coverage if any claims have been made.
Potential for a serious problem exists. Relying on a lender’s preliminary approval based on a purchaser’s credit, a purchaser will remove the financing contingency in the NVAR contract. When the purchaser subsequently applies for and gets turned down for homeowners insurance because of a claim history in CLUE, the lender will not fund the purchaser’s loan. At this point the purchaser is in breach because the settlement cannot occur without the mortgage loan. Purchasers need to put a contingency into the contract for review of a CLUE report and availability of homeowners insurance or else risk unexpected default consequences.
REALTORS® from all over the United States discussed the CLUE issue during NAR’s May mid-year convention in Washington, D.C. There was a consensus that home sellers, buyers, and REALTORS® need more education about CLUE. Homeowners and sellers may obtain the CLUE report on their own property from www.choicetrust.com for $12.95. It is important that sellers review this report carefully to correct any inaccuracies which may inhibit a new owner from obtaining homeowners coverage. For buyers, it is critical to find out the claims history of a property before purchase by requesting a copy of the CLUE report from the seller in a contingency clause in the contract. Getting a CLUE report as soon as possible during a real estate transaction will help ensure that buyers and sellers do not receive unpleasant surprises at the last moment causing unneeded stress and delays and possibly causing a sale to collapse.
Brian Block is an attorney with Brincefield, Hartnett & Kahn, P.C. and a REALTOR® with Re/Max Allegiance and a member of the NVAR Real Estate Finance Forum. He can be contacted at (703) 836-2880 or via e-mail at email@example.com