A question about home insurance and foreclosure.
April 2, 2008 7:33 AM Subscribe
Your house is worth 100,000$, the land 50,000$, and you have a bank loan for 100,000$. The house burns down. Are you legally responsible to give the insurance payment of 100,000$ directly to the bank?
We are dying of curiosity if someone in our town whose house burned down can grab the insurance money and then let the property go into foreclosure.
Would the bank intercept the insurance payment?
We are dying of curiosity if someone in our town whose house burned down can grab the insurance money and then let the property go into foreclosure.
Would the bank intercept the insurance payment?
This post was deleted for the following reason: poster's request -- jessamyn
It's a loan -- I don't think they'd have to give the bank the insurance money -- at least not all of it, maybe $50K because of the decreased value of the property, but they would have to continue paying the loan according to the terms agreed upon (they did sign a legally binding agreement) -- unless I am missing something?
posted by nnk at 7:43 AM on April 2, 2008
posted by nnk at 7:43 AM on April 2, 2008
The mortgage agreement almost certainly allows the bank to call the loan if the house burns down. So they could demand payment of the outstanding balance on the loan immediately -- they don't need to wait until missed payments would otherwise result in foreclosure.
In any case, they would still owe the bank the money. If you owe someone $100,000 and you have $100,000 in the bank, they don't need some special magic way to intercept your money. They can sue you, and probably have the $100,000 frozen while the suit is in progress.
posted by winston at 7:46 AM on April 2, 2008
In any case, they would still owe the bank the money. If you owe someone $100,000 and you have $100,000 in the bank, they don't need some special magic way to intercept your money. They can sue you, and probably have the $100,000 frozen while the suit is in progress.
posted by winston at 7:46 AM on April 2, 2008
I'm pretty sure you wouldn't just be able to collect the money, although in theory you could hire a shady contractor to rebuild the house on the cheap and give you a kickback. That way, some of the value of the house would transfer to you but the bank wouldn't know. However, that's probably illegal.
posted by delmoi at 7:54 AM on April 2, 2008
posted by delmoi at 7:54 AM on April 2, 2008
In many instances the bank is also listed on the policy, but even if they are not they can sue for the money and as winston says have those assets frozen pending the outcome of the litigation. Banks don't like to sue, they usually just foreclose, but when they suspect fraud, or there is a total loss they are far more likely to sue. There has been an increased incidence of arson due to the present mortgage crisis, but these arsonists are fools. It won't help and they could end up going to prison. Our local fire department has lists of properties in foreclosure or other financial difficulty so that when one burns they can start the arson investigation right away.
posted by caddis at 8:01 AM on April 2, 2008
posted by caddis at 8:01 AM on April 2, 2008
If you have a mortgage, the mortgage company is most likely listed as an additional insured on your homeowners policy. any check written for the replacement of the home itself, not contents, will be written to both you and them in the event of a diaster. you will not be able to cash it with out their approval, which i would doubt they would give you until your debt to them is satified.
that is the reason they require you to have insurance in the first place, so you don't take the money and run..
posted by domino at 8:05 AM on April 2, 2008
that is the reason they require you to have insurance in the first place, so you don't take the money and run..
posted by domino at 8:05 AM on April 2, 2008
winston is right.
But it depends on how the policy is set up. Insurance, at its most basic, is a contract between you and the insurance company. You pay the premiums, and they will pay you the stated benefit if the stated event occurs. What the premium, amount and event is is up to the policy you agreed to.
So at its most basic, the owner of the property gets the money. But they still owe the bank the balance of the mortgage, regardless of the condition of the property.
But as a condition of the mortgage, the bank may require that they be named the beneficiary. Even if they aren't, and the property owner does default on the mortgage, the bank will sue to recover. Legally, that's probably part of the foreclosure proceeding.
posted by gjc at 8:09 AM on April 2, 2008
But it depends on how the policy is set up. Insurance, at its most basic, is a contract between you and the insurance company. You pay the premiums, and they will pay you the stated benefit if the stated event occurs. What the premium, amount and event is is up to the policy you agreed to.
So at its most basic, the owner of the property gets the money. But they still owe the bank the balance of the mortgage, regardless of the condition of the property.
But as a condition of the mortgage, the bank may require that they be named the beneficiary. Even if they aren't, and the property owner does default on the mortgage, the bank will sue to recover. Legally, that's probably part of the foreclosure proceeding.
posted by gjc at 8:09 AM on April 2, 2008
My parent's house did burn down a couple of years ago. As ODiV says, what happended was the insurance company payed out to the limit of the policy (and even a bit over) for temporary housing, reconstruction and replacement of contents. There were very few direct cash payouts. My parents supplied the bills for things and were reimbursed. They had some arrangement with the bank and the insurance company to finance the construction costs. During this time, my parents were responsible for continuing to make payments on the house.
My parents also had the option of taking a cash settlement, though at a discounted rate, in effect selling the house to the insurance company. In that case, title would have transferred to the insurance company. I would assume that, as with any house sale, my parents would have then been required to settle up with the bank. I am guessing on the last, as it did not actually happen, but that seems like the most reasonable thing to me.
Furthermore, this was one policy in a country just a bit north of yours. Things might well be different where you live.
posted by bonehead at 8:18 AM on April 2, 2008
My parents also had the option of taking a cash settlement, though at a discounted rate, in effect selling the house to the insurance company. In that case, title would have transferred to the insurance company. I would assume that, as with any house sale, my parents would have then been required to settle up with the bank. I am guessing on the last, as it did not actually happen, but that seems like the most reasonable thing to me.
Furthermore, this was one policy in a country just a bit north of yours. Things might well be different where you live.
posted by bonehead at 8:18 AM on April 2, 2008
The mortgage company will be listed on the policy and they will be paid off by the insurance company. Not even a chance the homeowner gets to decide if the mortgage gets paid off.
posted by curlyelk at 9:57 AM on April 2, 2008
posted by curlyelk at 9:57 AM on April 2, 2008
Also, depending on your policy there will be the Actual Cash Value payout based on value minus deprecation minus deductible which as bonehead suggests, is significantly lower than you'd expect, and/or the Replacement Cash supplement which would reimburse costs for construction.
In my limited experience, if the ACV insurance payout went to the homeowner for some reason, and they miss a mortgage payment the lender will start foreclosure and, as others have said, start suing.
posted by arruns at 10:07 AM on April 2, 2008
In my limited experience, if the ACV insurance payout went to the homeowner for some reason, and they miss a mortgage payment the lender will start foreclosure and, as others have said, start suing.
posted by arruns at 10:07 AM on April 2, 2008
I'm not familiar with any home insurance policy that indicates if there is a mortgage on the property or who holds the note, which often changes during the life of the mortgage anyway. There must be some language in the mortgage agreement that specifies what your obligation is if the asset that secured the mortgage in the first place ceases to exist.
posted by thomas144 at 10:34 AM on April 2, 2008
posted by thomas144 at 10:34 AM on April 2, 2008
Response by poster: How do find out who owns the note on a house?
posted by cda at 11:03 AM on April 2, 2008
posted by cda at 11:03 AM on April 2, 2008
The cash value my parents was offered was 60% of assessed or puchase price. Thus, for a stereo bought at $1000, my parents' options were a comparable replacement (which might cost $1200, for example), or $600.
posted by bonehead at 11:05 AM on April 2, 2008
posted by bonehead at 11:05 AM on April 2, 2008
I'm not familiar with any home insurance policy that indicates if there is a mortgage on the property or who holds the note, which often changes during the life of the mortgage anyway.
My $20,000 car insurance listed the finance company that held the note on it as an additional insured party, so I can't imagine they haven't managed to figure that out for $200,000 houses.
posted by jacquilynne at 11:23 AM on April 2, 2008
My $20,000 car insurance listed the finance company that held the note on it as an additional insured party, so I can't imagine they haven't managed to figure that out for $200,000 houses.
posted by jacquilynne at 11:23 AM on April 2, 2008
My $20,000 car insurance listed the finance company that held the note on it as an additional insured party, so I can't imagine they haven't managed to figure that out for $200,000 houses.
I own three houses, all of which are insured. Only one of the houses has a mortgage. Whether a house has a mortgage or not just never comes up - it's simply not something that my insurance company (AMICA) ever asks about.
I realize that cars are insured differently. I imagine that this is because they are so often destroyed before the loan is paid off! :-)
posted by thomas144 at 1:24 PM on April 2, 2008
I own three houses, all of which are insured. Only one of the houses has a mortgage. Whether a house has a mortgage or not just never comes up - it's simply not something that my insurance company (AMICA) ever asks about.
I realize that cars are insured differently. I imagine that this is because they are so often destroyed before the loan is paid off! :-)
posted by thomas144 at 1:24 PM on April 2, 2008
How do find out who owns the note on a house?
By "owning the note" I mean the people who you send the monthly mortgage payment to. It's not unusual for a mortgage to be sold during the life of the loan.
posted by thomas144 at 1:28 PM on April 2, 2008
By "owning the note" I mean the people who you send the monthly mortgage payment to. It's not unusual for a mortgage to be sold during the life of the loan.
posted by thomas144 at 1:28 PM on April 2, 2008
No conventional lender would loan money on a home unless it were insured and they were listed as the 'loss payee'. After 15 houses, most with mortgages, purchased in 6 states over 30 years, those that I have financed have all been this way.
Most morgtgages are PITI (principal, interest, tax and insurance) and the loan holder collects and escrows the insurance fee to be certain it gets paid. Ditto with the taxes.
Also, it's pretty unusual these days for a policy to have such a hard limit... as others have said, it's usually actual cash value (ACV) or at least nominally 20% more than the policy amount.
posted by FauxScot at 1:53 PM on April 2, 2008
Most morgtgages are PITI (principal, interest, tax and insurance) and the loan holder collects and escrows the insurance fee to be certain it gets paid. Ditto with the taxes.
Also, it's pretty unusual these days for a policy to have such a hard limit... as others have said, it's usually actual cash value (ACV) or at least nominally 20% more than the policy amount.
posted by FauxScot at 1:53 PM on April 2, 2008
Ditto [loan-holder escrow] with the taxes.
Note that this is not true in all jurisdictions. In Canada, at least in the juristictions I've lived in, these are paid directly to the municipality.
posted by bonehead at 2:09 PM on April 2, 2008
Note that this is not true in all jurisdictions. In Canada, at least in the juristictions I've lived in, these are paid directly to the municipality.
posted by bonehead at 2:09 PM on April 2, 2008
cda: "How do find out who owns the note on a house?"
If you go to the county/town/city Hall of Records or similar office, wherever they register deeds and maintain the Grand List and other stuff of that nature, you can usually look up a parcel of property and see what, if any, liens are against it and by whom. The lienholder is the one who has legal standing to foreclose and take possession of the property for lack of payment.
posted by Kadin2048 at 2:12 PM on April 2, 2008
If you go to the county/town/city Hall of Records or similar office, wherever they register deeds and maintain the Grand List and other stuff of that nature, you can usually look up a parcel of property and see what, if any, liens are against it and by whom. The lienholder is the one who has legal standing to foreclose and take possession of the property for lack of payment.
posted by Kadin2048 at 2:12 PM on April 2, 2008
thomas - the loan officer or processor that worked on your loan probably handled getting their mortgagee clause on your policy without you getting involved. I can assure you that the mortgage company is aware of your policy and is listed on it or they would have given you forced place insurance.
posted by curlyelk at 5:50 PM on April 2, 2008
posted by curlyelk at 5:50 PM on April 2, 2008
bonehead, are you talking about places where you've had a mortgage? It's very unusual for a lender not to insist on paying the taxes (I'm in Canada too). It's got nothing to do with the jurisdiction to whom the taxes are paid, it's a condition of the loan. The issue is that if you default on the taxes then the municipality can take the property and the lender would be left with nothing -- so the lender pays the taxes and adds them to the mortgage payment.
posted by winston at 7:08 AM on April 3, 2008
posted by winston at 7:08 AM on April 3, 2008
Really? Hunh.
It's quite possible to default on taxes in both Ottawa and Lanark County. You don't pay taxes to the bank/lender (which is what I think you're saying), but directly to the municipality. I've seen tax seizures in both places. I've bid on houses seized for taxes in Ottawa (the city auctions them off periodically).
posted by bonehead at 7:52 AM on April 3, 2008
It's quite possible to default on taxes in both Ottawa and Lanark County. You don't pay taxes to the bank/lender (which is what I think you're saying), but directly to the municipality. I've seen tax seizures in both places. I've bid on houses seized for taxes in Ottawa (the city auctions them off periodically).
posted by bonehead at 7:52 AM on April 3, 2008
This thread is closed to new comments.
I don't know how it works in your town. Call an insurance company and ask what the procedure is for paying out.
posted by ODiV at 7:43 AM on April 2, 2008