Fires, Insurance and Mortgages
With destructive wildfires burning in California this is an appropriate time to discuss the relationship between fires, disasters in general, and mortgages. One point for folks who do not live in California - California gets no rain for about 6 months each year. It gets essentially no rain from May-November and thus the brush and forest are extremely dry.
The last time downtown San Francisco recorded more than one-tenth of an inch of rain was April 16 (0.13 inches) with the last measurable rain falling May 23 (0.04 inches).
Paradise, CA is build adjacent to a National Forest and is fairly heavily wooded.
Getting Insurance
In 1998 California voters approved a ballot proposition which makes it very difficult for insurance companies to increase rates in response to perceived risks.
If you are buying a house in a place subject to wildfire danger you may find difficulty getting fire insurance.
In general this happens in rural areas which are not close to a fire station and may have poor ingress for fire engines and no fire hydrants. In California many of these places are in the wooded foothills of the Sierras.
Because of recent fires the areas excluded will likely increase. You may find that when your policy is up for renewal your carrier says the equivalent of "Nice doing business with you but..."
There are insurance companies which do write policies in high-risk areas. These change with time so you need to research who writes insurance for your high-risk area.
If you cannot get insurance from any of these your last resort is the California FAIR plan. Details here:
If you outside California the following site contains information for FAIR plans in other states: https://www.iii.org/article/what-if-i-cant-get-coverage
As far as I know FAIR plans cover only the structure. Your personal property and appliances are not covered.
There are two types of personal property coverage: those that reimburse you for the replacement cost for an item, and those that pay for its actual cash value. A replacement cost policy typically pays the dollar amount it will take to buy a new item at the time of a claim. An actual cash value policy provides coverage based on the current and presumably depreciated value of an item.
If you do not have replacement cost coverage you will have to pay the difference between the present value of your personal property and the replacement cost.
Mortgage Payments after a Disaster
If your home is severely damaged by fire, flood, landslide, earthquake or whatever you must not ignore your mortgage payments. If your home is damaged you should first contact your insurance carrier and file a claim and get an adjuster out ASAP. You need to get on track to have your home repaired/rebuilt but understand that you still have an obligation to your mortgage holder.
The insurance of your home does not cover damages from floods or earthquakes. If the property is in a flood zone you can get flood insurance under the National Flood Insurance Program. You get flood insurance from your regular insurance agent or broker.
If you live in an earthquake prone area you need special coverage for earthquakes in your dwelling policy otherwise you are not covered for damage from the earthquake itself. Your homeowner’s policy covers fire damage even if the fire is consequent to an earthquake. Lenders do not require earthquake coverage.
In general earthquake coverage is expensive and has sizable deductibles.
Mortgage Forbearance as a Temporary Solution
If your home is damaged or destroyed you may be able to get forbearance which is several months break from having to make your mortgage payments. You must request this from whoever services your loan. During the forbearance period you do not have to make payments but the interest will still accrue. No mortgage late payments will appear on your credit report.
FNMA allows forbearance of up to 12 months. This page details FNMA's forbearance policies: https://www.knowyouroptions.com/modify/disaster-relief-modifications
It is up to you to request and, if necessary, negotiate the forbearance agreement with your present loan servicer. Neither your loan officer not the original lender (in case the servicing was transferred) can do this for you.
Make your mortgage payments on time until you have a forbearance agreement in writing. If that does not come, you must continue to make your mortgage payments or you will rack up mortgage lates which will have a price at a later date since these adversely affect your credit scores.
Foreclosure proceedings can be initiated if you miss several payments.
Do not believe for a second that a few years from now you can say, "Sorry about those mortgage lates - but my house burned down." People may empathize but that empathy will not be reflected on your credit report and the late payments will still show up.
Put another way: if you could ask the servicer "Do you really expect me to make my mortgage payments on a house which has burned down”, their answer would be "yes."
If your house is totally destroyed it will likely be rebuilt with funds provided by the insurance carrier in which case (to make things a bit simple) you keep your old mortgage just as if nothing happened.
The existing mortgage does not have to be paid off just because the house burned down. If the house is a total loss and you are not going to rebuild, the insurance company will pay off the mortgage holder because they are named as the "loss payee" in your policy. Until that happens you still must make the mortgage payments.
Do not underestimate the damage to your credit that will occur as a result of mortgage lates.
To take this to an extreme, even death does not take a holiday from mortgage holders. If a relative dies the impact on their credit will not matter but a foreclosure could still take place if the mortgage is not paid on time. If you are the executor of a decedent's estate or the beneficiary-to-be make sure that the mortgage is paid in a timely manner. In California, a non-judicial foreclosure can take as few as 111 days from start to finish.
This picture can be complicated by tenancies-in-common and other factors but do not expect sympathy. Defend your interests and make sure the mortgage payments are made. Having your house burn down is tragic but getting late payments on your mortgage makes things worse.
Last year 2,800 homes in Santa Rosa were destroyed in one fire. In 1991 2,843 homes were destroyed in the Oakland Hills fire. If your home is damaged or destroyed in a large fire such as happened in Santa Rosa you may find that the most difficult thing is finding a contractor to rebuild. Success here may be a matter of knowing someone who will do this and acting as quickly as possible to retain their services.
Be very wary of any unsolicited contacts regarding repair/rebuild after fire damage. These could be scams.
Read this warning from the California Department of Insurance http://www.insurance.ca.gov/01-consumers/105-type/95-guides/03-res/dont-get-burned.cfm
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