The GAR form Seller’s Property Disclosure (SPD) provides for disclosure of insurance claims made during the Seller’s Ownership. If insurance claims have been made and they are not disclosed, the Seller may be accused of misrepresentation and fraud.
Why Disclose Insurance Claims?
There are several reasons.
First, disclosure by the seller avoids a claim by a buyer that the Seller misrepresented the property or did not disclose a material fact. If proved, it can cost the seller a lot.
Second, the SPD puts buyers on notice of issues that may affect their decision to buy. For example, if there was an insurance claim for a plumbing leak, the buyer would want to inspect the area to be certain the leak was properly corrected.
Third, the buyer’s home insurance premium can be much higher than expected if the seller has made numerous claims. Insurance companies do not want to insure a problem house. Depending on the number of claims, the buyer could have trouble getting insurance. Or if the insurance company decides to insure, it may decide to increase the premium to insure.
Fourth, the CLUE Report.
When a buyer tries to get insurance on the house, the insurer will pull a CLUE report.
CLUE stands for Comprehensive Loss Underwriting Exchange (CLUE). The report details a seven-year period of personal auto and property claims. Insurance companies use CLUE reports in the underwriting process and to determine premiums. The report includes the insured's personal information, policy number, type and date of loss, claim status, amount paid, and insured property information.
If the seller has not disclosed insurance claims, this is where the buyer will find out the truth. If the buyer gets the report before closing, it could kill the deal. If after closing, it could be grounds for a lawsuit. (Only owners and insurance agents can request the CLUE report.)
Remember the mantra: Disclose, disclose, disclose.
Sellers often are apprehensive about revealing problems that could potentially discourage buyers from making an offer. Remember the mantra: Disclose, disclose, disclose.
An inspector will likely find the issues anyway. The seller has then lost the buyer’s trust and lost the high ground in negotiating the repair. Or worse.
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