Fire and Foreclosure

3 Replies

This is a strange situation for me and I need some guidance please.

Situation:

A friend of my wife's house was in foreclosure.  She had begun moving her stuff out but had not completely vacated the property.  On Monday night while she (the homeowner) was sleeping the house caught fire and burned to the ground.  A total loss.  Our friend has no way to rebuild and the insurance proceeds will likely go to satisfy the note.  I am not sure of what is actually going to happen and this is mostly speculation.  She is currently living in a storage building that another friend provided on their property.  

My thoughts:

As the insurance payment will not satisfy the complete mortgage I was considering offering the difference between the insurance proceed and the balance to take ownership of the property.  My guess is that the difference would be approx $10k.  

The land is 14 acres.  I thought that perhaps I could donate a few acres to the friend free and clear so that she could begin to start over again with a much smaller debt when she was ready. Perhaps in the future she could buy a low cost mobile home and put in on the land.  

I have researched and found the Mortgage company.  I have not mentioned any of this to the owner as I just thought of it about 2 hours ago during Easter dinner.  If I was to move forward with this idea who would be the person to contact?  The mortgage company since the foreclosure process has started?  The friend?  Is my idea even feasible?  

Thanks for the advice.

Tim

You will have no luck trying to deal with the lender directly. They have a process and ultimately had the property not burned down they would have foreclosed and assigned the property to an asset manager. Then a company will have been hired to sell it. Your only option is to work with the owner. The bank will not negotiate with you. She has to call the lender and hope to have enough time to settle the insurance claim and get a payoff and get the money to the bank in time. You could certainly funnel the $10K to the bank through the owner but be sure you have a signed Purchase agreement in place first.

No doubt the lender is a loss payee on the policy so, the owner won't even have control of the funds. The lender will usually required a rebuild. That will stall the foreclosure for a period of time.

Deal with the property owner not the bank.  The bank won't deal with you as you have no interest in the loan account.  

Make sure the owner has an insurance policy.  Many times folks in default do not pay their insurance bill.  If that is the case the Mortgagee will have put in a forced place insurance policy which may not cover as much as you or she may think.  

Either way, she needs to start the claim process with the Loss Department at her mortgage servicer.  They will control the proceeds.  If she maintained a policy the money is generally designated to rebuild.  The mortgage company will control that process and can hold funds and reserve rights to approve budgets and spending of said proceeds to rebuild.  

If she wants to have the funds only payoff the mortgage and that is all, she will have to make those arrangements with the Mortgage company.  She will want to get everything in writing.  She may have to separately request any proceeds above the balance of the mortgage and outstanding interest and fees.  

Your idea to pay any balance may or may not be good.  It really depends on the value of the land.  For all of that you will need to work out the details with the owner while the owner works out the details with the mortgage company.  

If she does not have a policy then she will need to gain an understanding of what the Lender's policy will cover.  The Mortgage company with LPI is under no obligation to rebuild the home.  

I guess the moral of the story is do not overly plan things with out getting all the facts straight.  

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