Properties in any given area fall under specific headings, including being occupied, in escrow or vacant. These vacant homes are the most high-risk properties for bankers because there is no clear owner to maintain and protect the structure. For these properties, bankers rely on OREO insurance. There are several benefits of unoccupied home insurance that stem from a banker’s perspective.
OREO Insurance and Asset Protection
The main reason for unoccupied home insurance is asset protection. A home that stands alone for weeks or months is vulnerable to possible damages. An electrical short might start a fire in the home, for example. Because no one is in the home, the fire goes unnoticed until it’s raging strong. If a fire or other disaster breaks out, the bank has insurance protection to cover the losses. As bankers agree to the policy, however, they need to verify that all major disasters are covered. Generally, the insurance should cover wind, storm, fire and earthquake damages.
Routine Items Covered
One area that’s often overlooked within OREO policies is coverage for basic structural items. If the plumbing pipes freeze and burst, the insurance should cover the repairs. A faulty electrical box that surged when no one lived in the home is also covered. Additionally, banks also benefit from property taxes being covered. All of these expenses add up over time to cost the bank several thousand dollars. With proper insurance, the asset doesn’t cost as much to maintain until a buyer can be found.
Streamlined Home Sales
Once a buyer is found, the bank wants to process the sale as quickly as possible. If the property has been damaged during the vacancy, such as from vandalism, this fact often slows down the sale. Repairs must be made and paid out by the bank. When OREO policies are in effect, however, any vandalism is quickly repaired well before a buyer is ready to purchase the home. As a result, the sale can be completed very quickly.
Banks normally shop around for their OREO insurance coverage because policies will vary in cost between several providers. Once the right insurance company is found, bankers can send all of their business to that entity. In some cases, the unoccupied home insurance might be low cost because of multiple policies held by the bank at any one time. The benefits almost always outweigh the drawbacks when it comes to OREO insurance.
