Insurance for ‘drowning’ homes guards against foreclosure and devaluation
Not to be mistaken for flood insurance, which covers your property in case of actual water damage, underwater mortgage protection insures a home if the value of the property falls below the amount owed on the mortgage.
This circumstance is often referred to as ‘negative equity,’ ‘underwater’ or ‘drowning’ homes.
Negative equity is an ongoing problem for homeowners: 7.1 million homeowners, or 15 percent of all homeowners, in the U.S. are underwater, according to CoreLogic, a property information and analytics firm.
AmTrust Financial Services is the first in the nation to offer Underwater Mortgage Protection, which costs the homeowner an average of $40 to $50 per month.
“We created underwater mortgage protection to help homeowners who want to avoid the potential pitfalls of being underwater when they want or need to sell their home,” says the program’s co-founder, Matthew Kayton, vice president of real estate insurance at AmTrust Financial.
With this coverage, AmTrust Financial helps homeowners through the sale process with a guaranteed sale date. It will pay the homeowner’s difference between the mortgage and real value of the home, remaining mortgage debt and costs associated with selling.
Kayton says the insurance offers homeowners peace of mind. This way, homeowners can avoid the negative credit or tax implications that sellers often face when they undergo foreclosure or short sale.
Consumer groups, in contrast, advocate for the homeowners to make smart purchasing decisions to avoid negative equity, and to take the insurance money and instead “self-insure” by paying down the mortgage principal faster.
The product comes with a few restrictions: It can only be issued on a primary residence (no vacation or second homes) and has a maximum property value of $400,000.
© CTW Features