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A CLUE Report Can Be A Home Buyer’s Nightmare

Some little-known reports from a database called the Comprehensive Loss Underwriting Exchange (known as “C.L.U.E. Reports”), are sending some home buyers and sellers into a tail spin. The reports are supposed to contain summaries of insurance claims filed, but often contain entries that make a potential home buyer, or a house to be sold, look like a bad insurance risk when they really are not. A claims history “score” can be negatively affected by. “zero-loss payout” entries in the database, or even mere inquiries concerning coverage - and that’s the rub.”

Recently, a buyer who had filed a claim for hail damage on property she had owned previously in another state was denied coverage when she tried to apply for insurance on a house she was buying in Illinois. Her CLUE Report showed her to be “stigmatized.” Her situation is not unusual.

“CLUE Reports are making it virtually impossible for some people to obtain homeowner’s insurance, and this can be especially devastating for prospective home buyers,” said Joseph R. Fortunato, Jr., president of the Illinois Real Estate Lawyers Association (IRELA). “Most lenders require proof of insurance coverage before a home loan can be finalized.’ No insurance coverage can equate to no mortgage financing, and that cannot surprisingly, kill a deal.”

CLUE Reports track claims filed over the preceding five years both by potential buyers, and by owners of properties to be purchased. Therefore, IRELA recommends that buyers take the following steps to avoid having a deal fall through:

1) Decide ahead of time where to seek home owner’s coverage. IRELA suggests that buyers consider using an independent insurance agent who can assist them in finding the most appropriate coverage. “Some insurance companies are refusing to insure first time home buyers, and those buyers may need to shop extensively to obtain a reasonably priced policy, if they can be insured at all,” Fortunato said. “We feel that an independent broker, who is not committed to using one provider, is a more satisfactory way to go.”

2) Apply for insurance as soon as the contract offer is accepted by the seller. Fortunato says that a buyer should contact his or her attorney no later than two business days after the date of contract acceptance if any problems arise in obtaining coverage.

3) Be sure that the insurance quote you obtain is based on a C.L.U.E. report analysis. Insurers often have a window of 60 days within which they can increase the rate for your coverage retroactively if the C.L.U.E. database is not checked until after the time of application and problems are subsequently uncovered.

Fortunato said that the insurance industry established the CLUE tracking system to control costs, but he says they may have gone too far by including even “zero-loss payout” entries and records of mere inquiries in the database. “A buyer who previously made a claim on water damage, mold, fire or a fallen tree - even if payment was denied - may not qualify for insurance for their new home, or else may have to pay exorbitant rates,” he said. “Even if the home owner only filed a minor claim, it can cause problems.”

The most alarming part of the CLUE report, according to Fortunato, is that even if an owner made just an inquiry to an insurance company about coverage and never actually filed a claim, it could show up on a CLUE report and subsequently affect the ability to get coverage.

Fortunato says that anyone wanting to check their claim status can buy a CLUE report on-line for about $13 at the Choice Trust Web site at www.choicetrust.com or by calling (800) 709-8842.

The Illinois Real Estate Lawyers Association is a not-for-profit organization composed of experienced attorneys dedicated to assisting individuals and businesses in connection with real estate transactions of all types. Headquartered at 2340 S. Arlington Heights Rd., Suite 400, Arlington Heights, IL 60005, the Association can be reached by phone at (847) 593-5100 or on-line at www.reallaw.org.

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