Insurance says rooming house. The loan documents say single family.

I'm not under contract yet, I'm doing the paperwork side first because that's how I do things. Reading two documents that don't agree.

The property is a 4 bed 2 bath, and my plan is four separate room leases. When I described that to get a quote, the first carrier came back with a rooming house or boarding house classification and a premium about 70% over the standard landlord policy quote on the same house. The second carrier said they don't write it at all with more than two unrelated leases in place.

Separately, the loan product I was pre-qualified for has an occupancy and use section that describes the property as a single family residence occupied by tenant under a lease. Singular. My four leases are four leases, and I can't tell whether that language cares.

The questions I actually have:

Does a master lease structure change either of these, where one entity holds one lease with me and sublets the rooms? I keep seeing that suggested and I don't understand what it does other than move the paperwork.

If a carrier writes it as a dwelling policy after I've told them there are four leases, and something happens in a shared kitchen, is the disclosure I made in the application what protects me, or does the classification on the declarations page govern?

Has anyone had a lender actually raise this after closing, or is the occupancy language mostly about owner occupancy and I'm reading a ghost?

I'd rather find out now than find out at a claim.

Answer

1priya_n21PO1C

The premium gap is the part I'd chase before anything else. 70% on a policy is real money against a room rental spread, and I've heard the classification described three different ways by three different agents on the same house, which tells you the underwriting isn't uniform.

What helped me get a straight answer was asking the agent to name the form and the classification code in writing, then asking what specifically triggers it. For one carrier it was the number of separate leases. For another it was whether meals or services were provided, which is the old boarding house definition and had nothing to do with how I planned to run it. Once you know which fact flips the switch you can at least see whether your plan actually trips it.

On the master lease idea, I don't think it makes the carrier's question go away. Somebody is still renting rooms to four people in that building and the carrier cares about what happens in the building. It moves who signs what.

2 replies

2ryanmck27SC2C

On your point 2, the answer I've been given consistently is that the declarations page and the form govern the coverage, and the application matters for whether the carrier can rescind for misrepresentation. Those are two different fights and you want to be in neither, so get the classification correct on the declarations rather than relying on having told someone.

Whether a specific policy responds to a specific loss is a question for a licensed agent or coverage attorney in your state, and I'd get that opinion before you're at a claim rather than during one.

On point 3, the occupancy language in most residential loan documents I've read is about whether the borrower occupies, plus a business use restriction that varies a lot by product. Some spell out the number of units and say nothing about the number of leases. Ask your loan officer to point you at the exact section and confirm in writing that four room leases in a single family are acceptable under that product, because the answer differs by product and by lender and nobody in a forum can tell you what yours says.

The master lease version I've seen in practice was a company holding the lease and running the rooms as their operation. That changes who the carrier and the lender are looking at, and it also means you're relying on that company's solvency for your rent.