The Foreclosure Report

'Arcane' Insurance Leaves Ownership 'Unclear'

The Toledo Blade reports on a rare type of insurance in a foreclosure. "With the ultimate owner of the landmark One SeaGate building in downtown Toledo in question, the fate of the office tower could make history. If the worst happens in a year and the current landlord defaults on its mortgage, the new owners could be investors in a real-estate trust or perhaps an insurance company."

"The 32-story structure might be the first in the United States where a relatively new type of insurance policy had to pay because the building value declined after 25 years. If the landlord fails to make its final 'balloon' payment of $32 million late next year, an insurance company is obligated to make the payment, or at least pay the difference between the market value of the building at the time and the $32 million."

"'I think it's something of a unique case,' said Stephen Jacobson. 'In most cities the value [of an office building] would go up after 25 years.'"

"At key factor is residual-value insurance, an arcane type that protects lenders in situations of office buildings erected mainly for one large tenant on the hook for all the bills for many years."

"Jack Garraty said such insurance has been around only for a decade or so. 'There haven't been that many cases where the insurance company had to pay,' he said. Who would own the building if Newkirk defaults is unclear."

posted by Ben Jones @ 10:45 AM