Builders Capital requires Borrowers to purchase and maintain appropriate insurance policies on their subject properties for the life of the loan. In each case, this is delineated in the Loan Agreement (Schedule 3) signed by the Borrower at closing. It is essential to maintain appropriate insurance at all times to ensure the ongoing success of each project and mitigate the risks for both the Borrower and Builders Capital.
Borrowers that allow an insurance policy to lapse prior to loan payoff will have their Draw privileges suspended for each affected property until insurance is reestablished. Additionally, lapsed Builders Risk, Homeowners, or Flood insurance will result in Builders Capital Force Placing an appropriate replacement policy on the property at the Borrower’s expense.
The following terms are defined to ensure clear communications between Borrowers and Builders Capital:
- General Liability: Covers the Borrower and their company for claims involving bodily injuries and property damage resulting from their products, services or operations. It does not cover damage to the vacant land. May be superseded by a Homeowners policy for some Fix and Flip projects or after vertical construction is complete.
- Flood Insurance: Protects a Borrower’s property and belongings if they are damaged in a flood. Standard property insurance policies, such as homeowners insurance, typically do not cover flood damage. Only required if the property is in a Special Flood Hazard Area (SFHA).
- Builders Risk: Coverage of buildings and structures while they are under construction as well as materials, supplies and equipment that are onsite, in transit and temporarily at other locations. Must be in place during vertical construction, however, may be superseded by a Homeowners policy for some Fix and Flip projects or after vertical construction is complete.
- Homeowners/Hazard: Coverage for the structure of a home. It also provides liability coverage against accidents in the home or on the property. Only applies to completed structures (i.e. after vertical construction is complete). Depending on the Scope of Work, insurance providers may provide Homeowners insurance instead of Builders Risk and General Liability for some Fix and Flip projects.
- Commercial (or Business) Property Insurance: An insurance policy for businesses and other organizations that insures against damage to their buildings and contents due to a covered cause of loss. Builders Capital requires Commercial (or Business) Property insurance for non-residential properties provided as collateral on a loan.
- Force Placed Insurance: Also called ‘Creditor Placed Insurance’. Lender-placed insurance when the insurance has lapsed, or the coverage amount is not sufficient. This allows Builders Capital to protect its financial interest in the property. It is very costly for the Borrower when compared to insuring normally.
- Binder: A temporary document that represents the agreement between the borrowing entity and insurance company. It is a confirmation in writing that a policy will be issued. The insurance binder is a proof of insurance you can use until you receive your actual policy. An insurance binder may be issued for a limited time and has an expiration date.
- Acord Form: Summary certificate of the essential information about an insurance policy.