Homeowners vs Landlord Policy Mismatch

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A Hidden Coverage Gap Putting Landlords At Risk

One of the most common leaseback mistakes is assuming a standard homeowners policy is “good enough.” In many cases, it isn’t. When a buyer allows a seller to remain in the home after closing, the buyer is no longer just a homeowner—they are legally a landlord.

Why a Standard Homeowners Policy May Not Work

Homeowners policies are commonly designed for:

• Owner-occupied residences

• Personal use

Once the seller stays under a leaseback agreement, insurers may require policies that allow tenant occupancy. Without the right policy, coverage gaps can be quite costly.

Real-World Risks of Policy Mismatch

If the policy doesn’t match the occupancy:

• Property damage claims may be denied

• Liability claims (injury to seller/tenant) may not be covered

• Legal defense may be excluded

• Buyer may be personally exposed

This is not hypothetical—it happens regularly.

Why the Lender Must Be Involved

Mortgage companies care deeply about:

• Property occupancy

• Risk exposure

• Insurance compliance

Some lenders:

• Require proof of a landlord policy

• Must approve leaseback terms

• Will not accept policies that contradict loan documents

If the real estate professional doesn’t flag the leaseback early, the buyer may be scrambling for coverage after closing, when options are limited.

What Smart Real Estate Agents Do During Leasebacks

Experienced agents:

• Tell buyers upfront: “You’re temporarily a landlord.”

• Confirm with insurance agent that occupancy is aligned with client’s policy guidelines.

• Encourage early coordination with:

◦ Insurance agent

◦ Mortgage lender

• Build insurance review into the transaction timeline early.

Why This Protects Your Reputation

When insurance and lending are aligned, deals close smoothly. When they aren’t, real estate professionals often get blamed—even when the issue was not preventable. Smart real estate agents don’t “assume coverage.” They verify it.

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