United States: Let The Seller Beware: Owner-Financed Mortgages As A Bar To Insurance Coverage

Last Updated: September 29 2017
Article by Mary Alice Jasperse

Property owners may see many benefits to financing the sale of property themselves, including a higher sale price and a more expedient closing. Many times such owner-financed sale agreements can take the form of "lease to own" transactions in which a landlord-tenant relationship quickly transitions into a seller-buyer relationship. Caught unaware, a seller-insured can unintentionally void coverage under his or her homeowners' insurance policy by keeping his or her insurer in the dark about the property sale.

Most homeowners' insurance policies contain a provision rendering the entirety of the policy null and void in the case of "any change in interest, title or possession" unless the insurer provides written consent to the same. Under Georgia law, "[t]here is no question as to the validity of the stipulation that the policy would become void at the option of the insurer in case of any change in the title or possession by legal process." Aronoff v. U.S. Fire Ins. Co. of New York, 178 Ga. 97, 172 S.E.59 (1933)(voiding policy for fire insurance based on the policy's provision barring "any change . . . in interest, title , or possession of the subject of insurance , whether by  . . . voluntary act of the insured or otherwise" when a secured party repossessed certain insured property that was the subject of a purchase money security agreement); see also Curtis v. Girard Fire & Marine Ins. Co., 190 Ga. 854, 11 S.E.2d 3 (1940)(voiding policy of insurance based on statutory grounds and terms of policy where the policyholder issued a bill of sale to another, holding "a bill of sale to secure debt is something more than a mere lien. It is an alienation. It divests the maker of title in the property; and both the policy and the statute provide that it shall cause a forfeiture of the policy."); see also Aldridge v. Dixie Fire & Cas. Co., 223 Ga. 130, 153 S.E.2d 723 (1967) (voiding policy where insured conveyed fee simple title in insured property without notifying insurer); distinguished on other grounds by Hillary v. Burrell, 237 Ga. App. 792, 516 S.E.2d 836 (1999).

In recent history, the Georgia Code included a statutory prohibition against the "alienation" of property, a violation of which resulted in the rendering of the policy void. While the Georgia code no longer includes a statutory prohibition against the change in an insured's interest in the loss location, Georgia courts still generally uphold "change in interest" policy terms such as the one referenced above with a few folds of confusion. See Georgia Farm Bureau Mut. Ins. Co. v. Brown, 260 Ga. 160, 390 S.E.2d 586 (1990).

One such wrinkle involves a scenario where an insured initially conveys an interest in the property but subsequently reacquires the previously-conveyed interest before the loss occurs. In such a situation, the insurer cannot void the policy. See Home Ins. Co. of New York v. Johnson, 49 Ga. App. 709, 176 S.E. 513 (1934). In Home Ins. Co., the Georgia Court of Appeals found that the policy was not forfeited where the named insured conveyed the insured property by warranty deed to his brother-in-law, who, on the same day and by warranty deed, reconveyed the property to the named insured. The first conveyance was recorded; the conveyance back to the named insured was not. The court found that "where the loss was in nowise affected by [the alienation], [the alienation] did not void the policy." The Georgia Supreme Court affirmed Home Ins. Co. in Brown, holding that where property is initially conveyed and later reacquired, "the contract of insurance may be only temporarily suspended by the violation of a stipulation in the contract similar to that now before us, and may thereafter be revived, and [] if no loss was caused or can be attributed to the violation of one of these conditions, the company is not relieved from liability." Georgia Farm Bureau Mut. Ins. Co. v. Brown, 260 Ga. 160, 390 S.E.2d 586 (1990).  If, however, the loss occurs "during the existence of the increased risk" (the change in property interest), "then the case would come within the holdings of Aronoff; Curtis; and Aldridge, supra, and the policy would have been voided." Id. at 162. Thus, after Brown, the policy could not be voided if the "change in interest [did not] persist[] through the time of the loss. Id. at 161.

After Home Ins. Co. and Brown, plaintiff-insureds attempted to convince Georgia courts that a causal connection must exist between the change in interest and the loss for the forfeiture provision to have teeth. Georgia courts rejected such a causal requirement, while, at the same time, upholding the Brown court's prerequisite that the property be "during the existence of the increased risk" when the loss occurs. In Schroeder, a case involving a separate condition of a commercial policy, the Georgia Court of Appeals held "[t]here is no requirement that a causal connection between the increased risk, in this case the operation of a commercial enterprise, and the loss itself be shown." Schroeder v. Georgia Farm Bureau Mut. Ins. Co., 211 Ga. App. 302, 439 S.E.2d 18 (1993). 

For homeowners wishing to self-finance, this coverage dilemma can be avoided by following some general rules of thumb. First, sellers should inform their insurer of any land sale agreement and inquire about how the sale will affect the underwriting of an insurance policy. To best preserve its interest, a seller-insured should request a written acknowledgement of the transfer in interest. Secondly, sellers should require buyers to obtain a separate homeowners' insurance policy specifically identifying the seller as a loss payee. Keeping clear records at the time of the sale can greatly benefit a seller-insured should the property suffer a loss.

On the other side of the coin, insurers looking to void coverage on the grounds that an insured changed its interest in the policy should consult its underwriting department to determine if the insurer ever received notice of the change. If underwriting confirms that no such notice has been received, the insurer should then ask underwriting if knowledge of such a change would have a material affect on the terms of the policy. At this stage, the insurer must determine if it would have altered the terms of the policy, had underwriting been notified of the insured's change in interest. Here, materiality is key. If the underwriting department contends that the change in interest would have had no effect on the writing of the policy, an insurer should pursue this coverage defense no further. On the other hand, if an underwriting can show that the ownership shift would have affected the drafting of the policy or premiums associated with the same, the "change in interest" clause may provide a valid coverage defense.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.