Sorry but if your house is destroyed, you still owe the mortgage

With natural disasters and owners of insurance costs that make titles, many homeowners can be found on “what”. In at least one area, transforming anxiety into action could help to ease some concerns.

Too often, those who face an unimaginable loss are not aware of how the insurance payments work with the mortgaged houses – or that they will have to work with the mortgage, as well as their insurer.

“When you have a family that has just lost everything, they do not have the mental ability to take it,” says Brittnie Panetta, a bodily injury with Matthews & Associates, who worked with California fire victims. “You just try to turn your feet.”

Understanding this process before you ever need to prevent the addition of stress in an already difficult situation. Here’s what happens to your mortgage if your house is destroyed, how you may have to work with your mortgage company and the steps you can now make to make sure you will have the resources you need in case of disaster.

The first steps

Even if your house is a total loss, “the mortgage lives, unfortunately,” says Panetta – and you are still expected to pay it. Therefore, following a devastating event, one of the first calls you should make is to do Mortgage service. The service is the company you make payments to whether is your original creditor or a different company.

If you need the money you would have spent -you pay the mortgage to cover other immediate costs you will want to ask tolerance. A mortgage agglomeration temporarily puts your loan on hold, allowing you to skip payments without experiencing delay or damage to your credit score. Tolerance is temporary and not forgiveness – you will need to make up the missed payments. But the short -term exemption they offer could be invaluable.

Even if you can continue to make payments, you need to inform yourself on your provider about what happened. In fact, most housing loan documents need to inform the creditor or servant. This is because the company that owns your mortgage has a request in your home this relationship can influence what follows.

Reconstruct or pay

The owners of houses facing a total loss must make a difficult choice: if they use their insurance money to rebuild or pay the mortgage.

“It is very difficult,” says Jennifer Beeston, a branch manager and senior vice president, who worked with the victims of Tubbs and Camp Wildfire in California. “This is a horrible, emotional moment. But unfortunately, it is also one of those moments when the truly understanding of mathematics, looking at your options, weighing for and against … is essential. “

Mortgage documents are often full of complicated language and reconstruction, but it is generally reduced to a few key points. As mentioned above, the creditor must be notified of the loss. Subsequently, the owner and the housing creditor must agree on the payment of the insurance will be to pay the mortgage or the reconstruction. If the homeowner chooses to rebuild, the rebuilt house must be comparable to the value with the one that was destroyed – and the creditor manages to pay the insurance money.

For many homeowners, signing on the insurance check at their mortgage service is an unpleasant surprise.

“This was one of the things that people were really upset about,” Beeston recalls about the tubbs fire. “Because I do not want someone to control their money, which I understood, but this is standard throughout the industry.”

During the reconstruction process, the homeowner continues to make mortgage payments. This can mean paying a mortgage for a house that cannot be deprived while paying for other accommodation spaces. Loss of coverage of usewhich is a standard part of most housing owners insurance policies, can help defraud these costs; Housing assistance Fema can also help with this expense.

A housing owner who cannot afford – or does not want – reconstruction should use his request funds to pay the mortgage of the property destroyed in full. It is important to know that insurance policies can pay smaller settlements for mortgage reimbursement than for reconstruction.

“It becomes a less desirable option to pay only the mortgage with these prices,” says Panetta, the lawyer for bodily injury. “Your policy can say that you are insured for $ 500,000 if you want a payment, but up to a million if you want to rebuild. It is a huge discrepancy in value. “

Planning forward

While you cannot control when the disaster is hit, you can put yourself in a better position to face it. There are a few key preparation steps you can do now.

Make sure that you can Easily access the key information about your mortgage such as loan details and service contact information. In the past, this could have meant keeping these documents in a wire safe, but today, their storage in the cloud or in a safe application is probably more handy.

In addition, keep the documentation of your budget or ordinary expenses. These figures may be required if you have to submit a loss for use, as it is calculated in relation to your normal expenses.

The second step – and, certainly, much more difficult – is to re -evaluate the provision of homeowners. If you have a mortgage, in general, you are asked to have an insurance of the homeowners. But you want to be sure Cover would be enough To rebuild the market rates and that you have to cover the disasters you need.

Putting these pieces in place now can provide a certain insurance that, if the worst happens, you will have resources to recover.

The article that happens to your mortgage if your house is destroyed? originally appeared on Nerdwallet.