investment property, insurance, and bancruptcy

**Home Inspector Kingston The Financial Toolbox **

**John Marston BSc, Eng tech, CMI **
(Certified Master Inspector)](
613 893 0159 cell or text
** **

Insurance of a property **
** Your Personal Bankruptcy is on the line

** “Illegal Investment Properties”**

This is what your Home Inspector should be advising…

The initial build of a property would normally give rise to a city permit for construction. The city building inspector would normally make visits to the construction site as the work progressed to insure that the construction meets the current building code at the time. Of course there are many areas where no building permit was obtained.

In terms of ***possible replacement or specific Damage *** that might occur to this property, an application to an insurance company would be in order. The insurance company would likely send a Building Inspector “not a Home Inspector” to assess the value of the property and offer options for insurance coverage: for example… basic replacement cost, plus flood, vandalism, tree falling on your roof… etc

Years after the initial build was completed and now occupied, the insurance company has no way of knowing that the home owner has made modifications… especially if there was no City Permit applied for. If the market value has increased due to these renos,
and a claim was made, the insurance claims agent would assess the damage…. and the following could occur….

**The insurance company could decide not to honour any submitted claim **because the addition was never revealed. If the reno would have been disclosed to the insurance company, then it is likely that the premium would have been increased: Particularly if the source of the damage originated from the newly added space. Or the insurance company might offer a settlement based on the insured portion and leave you in a financial hole.

If, for example, you decide to consider purchasing an Investment Property… it would be prudent to ask the owner to provide a copy of the existing insurance policy.

A Home Inspector should advise you to be vigilant and know what you are buying.

***If over the years, modifications have been made Without Permits, and the property is now a Student Rental, this could be a huge can of worms should a claim arise. ***

If, for example, the rental property has never had a Fire Code inspection, then it is likely that the property is illegal. If there is a kitchen fire in one of the units and the building burns down, and someone is injured, the owner ( yourself if you buy it) would be guilty of negligence.

The insurance company would simply not honour your claim because the property is illegal in the first place, and also was never informed of the Change Of Use… say from an owner occupied section and an in-law suite: then to a multiple rental unit.

Change Of Use… Has your Home Inspector talked to you about this?

If there is a mortgage on the property, the mortgage company will sue you to recover their loan. The injured tenant will sue you due to negligence: and you are left with a burned down building.

Of course,
the lawsuits against you would be in the millions and literally bankrupt you.

If you had purchased the property using a Corporation, then the lawyers would attempt to argue that your newly formed corporation does not absolve you personally of responsibility as you are the only director.

If you want to insulate yourself using a corporation, then your Legal Advisor should structure the corporation with multiple shareholders. One of the shareholders could be another corporation. The financing and purchase should be done through the corporation. This manoeuvre will likely give rise to a new bunch of challenges… because the building is then owned by the corporation.

Frivolous Lawsuits are a favourite of the low income wage earner. If for example, a tenant falls through a balcony or off a deck. The argument would be that you knew it was unsafe, never obtained a building permit, and had it built by a handyman. So the argument is that you are negligent: Further you did not comply with the landlord tenant act ensuring the tenant would be provided with a safe liveable space. Your insurance company would likely not honour a claim.

And so your Home Inspector should tell you the following…

**In summary, it would be prudent to contact the city to obtain a copy of any past building permits. If would be wise to have a fire inspection. It would be necessary to bring in your favourite insurance agent. It would be wise to purchase the income property through a corporation with multiple directors. Further, in the event you decide to purchase the property and make extensive modifications, make sure that the insurance company provides you with insurance for the construction period. ** building permits 613 546 0000 ex 3208
normally the permit info would be requested by the attorney. Normally the info could be given to the current owner. But if you call directly, the clerk will tell you if any permits were requested or issued. A copy of that permit would be requested at a cost.

TIPS from Home Inspector Kingston The Financial Toolbox