{"id":1349,"date":"2021-04-12T11:00:56","date_gmt":"2021-04-12T15:00:56","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=1349"},"modified":"2024-04-25T23:20:02","modified_gmt":"2024-04-26T03:20:02","slug":"how-a-sudden-disaster-impacts-your-mortgage-loan","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/how-a-sudden-disaster-impacts-your-mortgage-loan\/","title":{"rendered":"How a Sudden Disaster Impacts Your Mortgage Loan"},"content":{"rendered":"\n
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As co-insured parties, you and your mortgage lender both\nhave a stake in the value and condition of your home. <\/p>\n\n\n\n

Your stake in your property value is obvious. But the lender\nalso has a vested interest. Your home\u2019s value is the collateral for the loan. So,\ncatastrophic damage raises serious questions about the status of a mortgage (or a\ndeed of trust<\/a>).\nIf an unexpected calamity damages a home, here\u2019s what buyers and owners should\nknow about the interplay between the insurer and the mortgage company.<\/p>\n\n\n\n\n\n\n\n

Unpleasant\nSurprises Before Closing<\/h2>\n\n\n\n

Imagine a seller and buyer, both excited about getting to\nclosing. Just days before the date, a formerly trimmed and healthy tree comes\ndown on the seller\u2019s roof. Caused by an unusually violent storm, this was a\ntruly unforeseen emergency \u2014 not the fault of the seller. And it resulted in\nserious damage. Now what? <\/p>\n\n\n\n

Very often, the buyer will opt to get the deposit back and\nlook elsewhere. Not all deals close \u2014 and here\u2019s a perfect example of a reason\nto cancel the agreement. The parties now must sign a formal cancellation of\ntheir contract, which legally lets the seller move ahead with repairs and getting\nthe home in market-ready condition again. <\/p>\n\n\n\n

But what if the buyer is undaunted? Can things be worked out\nwith the seller somehow? This is when everyone turns to the purchase agreement,\nlooking for language addressing unexpected problems arising between the signing\nof the agreement and the closing. Typically, this language will direct the\nseller to restore the property as soon as reasonably possible. If the repairs\ncan be done quickly, the real estate agents may manage to reschedule the\nclosing under the contract.<\/p>\n\n\n\n

Assigning the Claim<\/h2>\n\n\n\n
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Alternatively, the buyer can try to save the deal by accepting\nthe property as-is. In this case, an insurance assignment<\/em> is added to\nthe stack of closing paperwork. The seller must transfer the claim over to the buyer,\nwho will make the covered repairs. The seller may need to fund the insurance\ndeductible through the escrow account<\/a>\nfor the buyer. Or the seller could pay the buyer, and collect funds from the\ninsurer later.<\/p>\n\n\n\n

This is not a casual agreement. The insurance company, the\nbuyer\u2019s lender, and state law have to allow the assignment of the insurance claim.\nThis is because an assignment of a claim brings in another person, introducing\na new element of risk. So, to keep valid coverage, the buyer must make the\npurchase contingent on an insurer-approved assignment.<\/p>\n\n\n\n

Special Closing Rules in Storm Season<\/h2>\n\n\n\n

States are ranked for their susceptibility to storm surges<\/a>. Florida is #1, followed by Louisiana, then Texas, New Jersey and New York. Florida\u2019s annual hurricane season stretches from the beginning of June through the end of November. State law permits insurers to suspend storm damage coverage when a tropical storm or hurricane approaches Florida in those months, unless the paperwork was prepared in advance. This prevents waves of opportunistic policy purchases just before approaching storms.<\/p>\n\n\n\n

So, get familiar with your insurer\u2019s rules if you\u2019re\nplanning a real estate purchase or sale during storm season. To be prepared is\nto be protected, no matter what the weather does when the buyer is ready to\ntake the keys.<\/p>\n\n\n\n

It\u2019s a good idea to sit down with your insurance agent once\nyou purchase your home in a storm-prone area, to discuss wind damage coverage\nand other important types of coverage. Note that standard a homeowner\u2019s\ninsurance policy will not pay for flood damage. <\/p>\n\n\n\n

Interplay Between Insurance and Mortgage Companies<\/h2>\n\n\n\n

Whether you\u2019re getting ready to close, or have owned your\nhome for years, it\u2019s best to know how your mortgage servicer interacts with\ninsurance claims, payouts, and renovations. These interactions are guided by\nyour state\u2019s law and your mortgage (or deed of trust). Agreements you have\nsigned with your lender could impact these interactions.  <\/p>\n\n\n\n

A homeowner\u2019s response to an incident should involve prompt\ncalls to both the insurance company and the mortgage company. Here\u2019s what the\npolicy holder might expect:<\/p>\n\n\n\n