Property Under Contract and then.... Fire!!!

10 Replies

I have a property under contract in Great Falls, MT that recently had a fire break out and was a complete loss. Every one is fine and no one was hurt during the blaze. I am still within the property inspection period, so I am not worried that I will be forced to purchase the property or lose any earnest money. I have a question for the experienced attorneys and lawyers, potentially insurance agents in the community:

Do I still have any claim to the improved property after it is rebuilt?

Meaning purchase at the current agreed to price according to the contract, but benefit from the new rebuild on the property after the insurance claim process is complete. My thought is no as I am not the current owner, and it's not my claim, but thought the question is worth asking.

I am not seeking legal advice and understand that I should consult with a local attorney. I am just curious if anyone has been involved with a total loss insurance claim while having a property under contract.

@Austin Elm ,

Super bummed to hear about this property and your situation, it’s actually just two houses down from where I’m helping someone else get their property ready for sale, so I saw this house regularly. 

The scenario you pose to bounce back is a unique thought though with you having first dibs, same price, and possibly fixed up. I would think the original deal would no longer hold as the legal description of the home will have changed but that you would hold the position of First Right of Refusal.  I’m not the guy to know this, I’m just really curious.

Please let us know what you find out as this is really interesting.

I don't know anything in particular about the laws in MT, but *generally* when an insured loss happens between contract and close of escrow there are a couple of accepted solutions.  For example, let's say a house is worth $100K and a covered loss happens that pays $20K.  Buyer (B) and Seller (S) bargained for the purchase/sale of a $100K house.

* S makes repairs to restore property to $100K value; B buys for $100K, gets $100K house.

* S does not make repairs, keeps insurance money; B buys property for $80K, gets $80K house.

* S does not make repairs, delivers insurance money to B; B buys property for $100K, gets $80K house + $20K insurance check (really an offset resembling above).

When the damage is so extensive that the repairs substantially and materially improve the value of the house, probably easier to just renegotiate.  You buy the lot and they keep the check; or you pay the agreed price and they sign over the insurance claim to you - you do the rebuild.

"Do I still have any claim to the improved property after it is rebuilt?"

What does the PSA you signed say?  Our standard clause on insured prop loss is

1) Buyer option to continue

2) Buyer option to take insurance proceeds and repair (lenders don't like that) AFTER close or

3) Seller to extend inspection and fix with buyer approval.

I kinda like 2) if it wasn't for lenders.  Had a case where seller got $125K and did the repairs for about $57k and it showed.  Rest of the place was still pretty good so we signed off, but it happens.

OOC - My 104 y/o aunt lives in Great Falls and still lives on her own in a townhouse.  Prices going up?  I guarantee the upstairs part is untouched, since she can still walk, garden and cook, but stairs are too much of a risk.

@Eric Showers thanks for the referral.

@Jerel Ehlert thanks for laying out the potential scenarios. I would think that something along those lines would be the standard in Montana as well, but I appreciate you taking the time to lay it out. I don't think that I would have the right to benefit from the loss, but still have some claim within the contract to the property.

@Steve Morris our PSA has a clause that states "RISK OF LOSS: All loss or damage to any of the above-described Property or personal property to any cause is assumed by the Seller through the time of closing unless otherwise specified."

Thanks to everyone else for posting on this. My thought is just kill the deal at this point, but will be checking in with legal counsel and will keep everyone posted to this very unique situation.

@Austin Elm

No you don’t get to force sellers to give you the new and improved property at the agreed upon price for the original property. That’s pro level entitlement right there. Lol. Image you were on the selling side of this deal, is that what you’d want your buyer to expect?

Personally, I’d try to have the seller keep the check and get the property much cheaper and control the repairs myself. If the new value supported all the repair money. Then I’d know it was done right at least.