December 2009 Archives

December 28, 2009

Is Buying California Earthquake Insurance Worth the Money?

It's that time of year again -- when homeowners' insurance is up for renewal. And for Californians, that means it's also time to reconsider whether to pay around a thousand bucks in order to buy earthquake insurance. (It's a question for people in many other states, too, but for reasons discussed below, a more troubling issue here in California.)

Given that a major earthquake is expected anytime in the Golden State, and that an earthquake is capable of rattling a home into rubble within a few short minutes, you'd think buying insurance would be a no-brainer -- especially for me, whose level of risk tolerance extends no further than penny slot machines.

But I've noticed a curious trend. People I talk to within the real estate and construction industries -- the very industries I thought would insist on such coverage -- often tell me they haven't bought it.  In fact, fewer than 15% of Californians buy quake coverage. What's going on?

There are, in fact, two rational arguments against buying such coverage in California:

  • The deductibles are very high, usually 10% to 15% of the insured value of your home.  So if your home is insured for up to $300,000, you could be on the hook for $45,000. In a medium sized earthquake, you might sustain that much damage and have to pay it all yourself.
  • The California Earthquake Authority (CEA), which is the only source for such insurance, is not government-backed. In a major earthquake, it might just run out of money. So an earthquake that's big enough to get a homeowner past the deductible will probably have done a lot of damage to surrounding homes , and we'll all be running after the same dollars. (Well, maybe not all, given how few people are insured these days. But plenty of people nonetheless.)
Coincidentally, I've been getting bids for some foundation work recently. It's not cheap, but making sure that one's home has a solid foundation is an eminently practical way of dealing with earthquake risk. One of the contractors told me, in essence, "I replaced my own home's foundation so that it's as solid as they come, and now I don't buy earthquake insurance. I figure any quake that's big enough to damage my home will have completely destroyed all the homes around me, in which case there really won't be any insurance money left."

So there we have it. Me, I haven't decided about the insurance yet -- but I will be getting that foundation dealt with.
December 19, 2009

Loan Modification Tips for Those Having Trouble Paying the Mortgage

Don't miss this transcript of a radio interview with Bob Diamond, real estate attorney and developer, about the realities of loan modifications -- namely, how to make a request that the overburdened lender will actually pay attention to, and why it's truly in both the borrower's and lender's best interests to work out a modification rather than descend into foreclosure.

Be prepared for some bursts of rage, however, as you read about lenders' slippery tactics for avoiding dealing with consumers -- like Bank of America's continuing to have a working fax line for submissions, while not telling people that it essentially tosses the faxes without looking at them or recording them in its system. Good grief.
December 16, 2009

All Homebuyers Need to Check Their Credit Scores

The headline of Sandra Block (of USA TODAY)'s recent column says it all: "Home buyers need good credit scores even with 20% down payment." Credit is tight, tight, tight, and even people who assumed they could sail in and get a loan before may have trouble now.

Block also offers some sound advice for raising credit scores, including the latest word on whether to close little-used credit card accounts.

And given that even making a 20% down payment is difficult without some family help, it's worth checking out this Wall Street Journal article by June Fletcher, which succinctly discusses issues like whether it's better to arrange a gift or a loan, and what happens if the giver doesn't file a tax return. (Big penalties despite the fact that no gift tax needs to be paid during one's lifetime!)
December 5, 2009

When Selling a Home, Details Matter

I visited my first foreclosure open house recently. What a disaster -- sloping floors, peeling linoleum, a bad smell coming from the refrigerator (which was an imposing item itself, all black with a giant "Oakland Raiders" sticker on it), a hole in the living room floor, and so forth.

But the image that really sticks with me is the wadded up packet of ketchup (like you'd get from a fast food outlet) sitting on the kitchen counter. It would have been the easiest thing in the world for the agent to pick up and throw away.

True, it wouldn't have made a penny of difference to the home's (negligible) value, but I wouldn't have gone away with such an extreme a feeling of "No one involved in this transaction gives a darn." Which is why I say that details matter.