Your Credit, CLUE Reports and Buying a House

You know your credit affects everything, right? Did you know that your house (and the one you’re trying to buy) has a credit report? You know there’s a database for everything, right?

Several years ago a real estate agent I know had a buyer who was closing on a home purchase in a couple days. He called his insurance company a few days prior to closing and said he needed insurance. But.The combination of his credit (not 800+ credit score) and the house’s credit resulted in his insurance policy costing many, many times what he was expecting (and budgeting for). He no longer qualified to buy the house … and everyone found out a few days prior to closing.

Did you know that the Clue Report goes back five years into the history of a property. It is standard industry practice to purge losses over five years old“?

So … when the power went out for a week in last year’s derecho and the seller of the home you’re trying to buy filed a homeowner’s insurance claim for the $400 worth of groceries they’d just bought? That could affect the buyer’s ability to get affordable homeowners insurance.

In other words:

“Only information about property loss claims made against homeowner’s or automobile policies is included in the CLUE database. Information from the CLUE database plus your risk score make up the complete insurance risk profile. However, your credit history can play an important part in an insurance company’s judgment about your risk potential.”

Or:

When I’m putting together offers to Purchase when representing clients, I use an addendum (that has been a part of the standard Virginia Association of Realtors’ forms since at least February 2005) called the “Homeowners’ Insurance Addendum” (simple, right?). The most difficult part of this form is that most many Realtors in Charlottesville seem to have never seen this form – and many see it as an unnecessary, superfluous contingency . I don’t know why.

The form addendum is clear – it forces the buyer to ascertain within a short time period (similar to that of the home inspection contingency) that they can get affordable homeowners’ insurance – with a certain cap on the annual premium and the deductible.

Better to find out in the first two weeks if the homeowners insurance will be $4,000 per year instead of $700, right?

And: (bolding mine)

• If you file a claim for loss against your homeowner policy, the insurance company adds this information to the national database.

• The CLUE database is maintained by an information vendor, not another insurance company.

• If you apply for homeowner’s insurance with another company – say, you move to another part of the country – the new insurance company can access the CLUE database and learn of your past claims.

The CLUE report also shows the new insurer information about claims you filed under your previous insurer’s policy, although nothing filed more than five years ago. CLUE might also include information about inquiries you make, even if a claim was never submitted or paid. To find out if this practice is prohibited in your state, contact your state insurance agency. You can find contact information at www.naic.org/state_web_map.htm

Here’s why I use the form:

Home buyers who have never made a claim on their own policies are finding themselves being rejected for insurance coverage on the house they’ve just bought, because the house itself has a poor CLUE record. If you can’t get insurance coverage, you can’t get a mortgage. Worse, if you pay cash for a house and then get turned down for coverage, you can find yourself between a rock and a hard place — either paying excessive premiums to get your property protected or “going bare” with no insurance protection against a variety of perils. … Problems experienced by consumers in the homeowner’s insurance market because of errors in CLUE reports have received media attention, contributing to the perception that CLUE reports only pertain to homeowner’s insurance. CLUE reports may relate to individual homeowners or to a specific property. Reports of water damage included on a home’s CLUE report, for example, could blacklist the property, even if the owner never filed a claim and even if the real estate market is hot. Worse, the seller or buyer is not likely to know about errors in the report until the deal falls through. …

Now why wouldn’t you want to know about a house’s CLUE report?

(this is yet another reason I advise people to not file claims unless they suffer a catastrophic loss)

Update 1 May 2013for a much broader perspective on databases and privacy, read about CISPA, which …

will allow the government to collect all sorts of personal data from corporations, without any oversight at all, and will protect corporations from lawsuits based on their handing over that data. Without hyperbole, it’s been called the death of the 4th Amendment. Right now, it’s mainly the FBI and the NSA who are getting this data, but — all sorts of government agencies have administrative subpoena power.

Food for thought.

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  • http://www.bankforeclosuressale.com/ Simon Campbell

    This was a very interesting article. Here is another contingency that real estate agents should remember to advise their clients about. Making this part of the due diligence will save both the buyer and the seller a lot of wasted time and effort. It may be advisable for a seller to get their CLUE rating prior to listing.

  • Sean Carter

    a lot goes into finding the right home and the right area, After much research we found some NJ real estate that we are very excited to move into!