Subject-to and Land Trust Insurance Warning

As most of you know, I'm not a big fan of doing these kinds of deals, but there certainly is reason to do them under many situations. I address the methods of doing these kinds of flips in the Member's Training Area. This item is a caution on how you handle the Fire and Hazard Insurance. From my investor friends in Florida who know too well what happens when you go by to pick up the monthly payment in August and the house has floated down the block.

If disaster hits, there is a very real risk that the insurance company will point out to you then that by placing the property in a Trust (or sold via subject-to), legal Title did, in fact vest to a new owner. They will now argue that the existing policy where the previous owner (by name; i.e. John Smith) is mentioned as insured, is no longer valid.
Even though you are mentioned as co-insured, the reasoning is that John Smith is on record as the legal owner, and as Title is no longer in his name, the policy is no longer valid.
So, no check for you dude!

Here is the solution:
The only way to avoid this is to cancel the old policy, then take out a second Landlords Policy, listing as beneficiaries: "Bill Investor, Trustee for the John Smith Family Trust and Beneficiaries ATIMA".
ATIMA stands for As Their Interest May Appear.
You need not add the Lender here, although keep in mind that as your new Policy is the only one that is valid, the Lender will come knocking when a hurricane or fire strikes.

There's some more to it than that, but the lesson is this.
-1- Cancel the Old Policy
-2- Put a New Policy in Place naming the Trust as insured, as it is on Title now.
-3- Set it up in escrow, just like the previous one.
The Lender will be informed by the Insurance Company, and they will set up the paperwork.
As we use the Seller's name in the Trust, the Lender "most likely" will not see any reason to invoke the DOS clause.
We always have the Seller sign a document anyway where they inform the Lender that they have placed their Property in a Trust for Estate Planning purposes, so this should work just fine.