Who Is Actually Insured During the Leaseback Period

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Why This Matters for California Real Estate Professionals

Leaseback transactions are common in competitive California markets, but they create a legal and insurance role reversal that many parties don’t fully understand. When insurance isn’t structured correctly, even a small loss can turn into a denied claim, a lawsuit, or a damaged client relationship. The number one point of confusion in leasebacks is simple but critical: Who is actually insured during the leaseback period?

Who Owns the Home vs. Who Lives There

During a leaseback:

• The buyer owns the property

• The seller becomes a tenant

This change happens immediately at closing, even if the seller stays in the home for 7, 30, or 60 days. From an insurance standpoint, ownership AND occupancy determines policy coverage.

What Goes Wrong When Insurance Isn’t Updated

If the buyer keeps a standard homeowners policy without notifying the carrier:

• Claims may be delayed or denied

• Liability may fall on the wrong party

• The buyer may unknowingly be uninsured as a landlord

• The seller may assume protection that no longer exists 1

⚠ Important: A standard homeowners policy does not automatically cover tenant-occupied properties. 

Why Lender Communication Is Critical 

Many real estate professionals don’t realize this:

The buyer’s mortgage company may need to be informed of the leaseback. Why?

• Lenders approve loans based on owner-occupancy

• A leaseback changes the risk profile

• Some lenders require:

◦ A landlord policy

◦ A leaseback endorsement

◦ Specific insurance limits or language

Failing to notify the lender can create loan compliance issues—even after closing. 

What Smart Real Estate Agents Do During Leasebacks 

Smart agents proactively:

• Explain to the buyer that they are now a landlord

• Confirm the buyer’s insurance carrier knows about the leaseback

• Ensure the buyer’s policy matches the actual occupancy

• Encourage early communication between:

◦ Buyer

◦ Insurance agent

◦ Lender/mortgage company

Informed Real Estate Professionals protect their clients by making sure ownership, occupancy, insurance, and lending are clearly and properly in place at closing.