Home Payment Liability After Natural Disaster

At the beginning of September 2017, the Federal Emergency Management Agency had declared more than 46 official natural disaster areas. These disasters have lingering effects, but such declarable events include flooding, fire, tornadoes, hurricanes, monster winter storms, tornadoes, hailstorms, and other emergency situations.

The question of whether you have to pay your mortgage even if you home is uninhabitable has a short, but jarring answer. That answer is yes.

However, there are methods to delay payments while waiting for your insurance settlement to process. Proclamations are typically issued by banking regulators and government mortgage agencies after a disaster, to direct lenders and loan providers to make certain accommodations for borrowers. Unfortunately, these permissions are only guidelines, because lenders are required to abide by regulators’ parameters and agencies’ loan servicing guidelines. Do be aware a disaster doesn’t guarantee any level of mortgage relief. Each set of circumstances is considered case-by-case and it will be a joint endeavor between yourself and the lender.

A 90-day moratorium is traditionally imposed by the Federal Housing Administration on foreclosures of FHA-insured loans in a disaster area. Prompted by an official declaration by the current president at the time of the disaster, this freeze gives the homeowner time to contact and negotiate with the lender and insurance carrier to assess the damage and understand the situation. If you still need help after the 90 days are over, negotiating additional relief with your lender and insurer are your responsibility.

Mortgage relief tips

Here are some things you can do to get help with your mortgage:

  • Contact your lender and insurer immediately
  • Make notes during the conversation — no detail is too small
  • Keep copies of all documentation and provide them when requested
  • Agreed-upon accommodations are given as promised
  • The U.S. Department of Housing and Urban Development contact provides approved housing counseling agency for additional assistance
  • Inform credit bureaus your property is in an officially declared disaster area

What happens when relief runs out?

Lenders usually waive late fees and defer payments following a disaster, but those adjustments might not last beyond a few months. When the deferred period expires, those missed payments become due—either in a lump sum or according to an agreed upon payment plan. It is also possible if you’ve suffered a financial setback (such as a job loss) as a direct result of a disaster you may be offered temporary mortgage relief, even if your home was spared. Documentation will likely be required to prove the hardship.

How missed payments are reported to the credit bureaus depends upon your lender. An account might be reported as current or in deferment. Homeowners also can add a statement to their own report, explaining that the home is in a natural disaster area. Even if there’s not a house, you still own the property—which makes you liable for payments. Do not wait to talk to your lender and your insurance provider to explain your circumstances and negotiate. If you fail to make payments, it will hurt your credit score.

The loan still has to be paid, even if the home is a total loss. So, reducing the loan principal is not an option. That is why lenders require borrowers to purchase adequate homeowner’s insurance and why they will force-place that insurance if the you let it lapse.

Homeowners who have received a loan modification potentially face a complicated situation since a late payment can void that previous mortgage alteration. Most will face a choice of either the original modification terms or the current disaster relief, but not both.

Remember, a natural disaster does not guarantee mortgage relief. Just because your home has been destroyed, that does not mean you are freed from making monthly payments. If your home or your ability to pay your mortgage on time has been affected by a disaster, you, the borrower, are responsible for reaching out to your lender to get the assistance you need.

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