Phase 1 vs. insurance policy


#1

I am under contract for a community in Texas and going through the loan process. The loan officer says the funding lender will almost certainly require me to pay for an insurance policy that protects me (and the lender) against any toxic hazards. They do this in lieu of a Phase 1 report when they think the property is reasonably safe.

Is this legit and has anyone else experienced such a thing? I remember at the last MHM the speakers saying you had to do a Phase 1 to protect yourself but does this “insurance policy” work equally well? The policy should cost around $500 vs. $2,000 for a Phase 1. I want to save money but I also want to CYA.

I should say the community is on top of a hill (with an honest to God view-- in Texas no less) and is about 1 mile from any commercial or industrial sites.

Thanks.


#2

Is the $500 premium a single payment for the life of the loan or are you paying it every year?


#3

I would ask who the ins carrier is and call them for referrences.


#4

I closed on a park in NC about a month ago. I was required by Clayton Bank and Trust to have a phase 1 performed. The cost of the environmental insurance was almost the same as the phase 1 ($1800). The property is 38 acres, which makes a difference on the price.


#5

OK, got some more info.

It turns out I have to pay 500-700 (the dollar amount seems to change upwards every time we talk) at close of escrow to some insurance company in Switzerland. I never even get a chance to see the policy as it does not protect me. It is for the sole benefit of the lender. My loan officer (I would prefer to use another term but children and people with better manners than I might be reading this post.) says that all the loans he does require this. Funny, he never told me about it before. On top of that, he tells me I should be glad that I no longer “need” a Phase 1. Oh, and why is that I ask? Because, according to his version of logic, even though the policy only protects the lender, the insurance company would not issue it if they felt there were any possibility of toxics on the property. And would he, I innocently inquire, be kind enough to put that in writing? You all can figure out his answer.

Of course I am going to get a Phase 1 just to protect myself. So I guess I should feel good all over knowing that I will be doubly protected against the possibility of any toxic problems.

Rolf


#6

Rolf,

I closed several refi’s/purchases this year and in each case the lending institution (Conduit loan) asked me to complete a questionaire and from my responses elected to buy an environmental insurance policy versus completing a Phase 1. They said that if the questionaire had any red flags the phase 1 would be required.

Conduit loans are very detailed and strict in their practices. I was told that I am protected in case of any environmental issues outside of fraud on my part (answering questionaire/ knowledge of any issues and not disclosing).

Corey


#7

Corey,

Are you truly protected against any liability related to toxic problems? If so, what proof did the lender give you? In my situation, the loan officer has told me the insurance policy I must pay for does absolutely nothing for me and is for the sole protection of the lender. I would gladly pay for such a policy if it also explicitly protected me. Now I am just chalking it up to one more hand in my rapidly shrinking pocket.

Rolf