Major damage caused by Hurricane Harvey, Insurance not covered

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Major damage caused by Hurricane Harvey, Insurance not covered

Jeff McIntyre
Investor · Seattle, WA · Member since 2015 · 10 posts · 9 votes

I own a single family rental property in Houston that was ravaged by Hurricane Harvey. I bought the home from Memphis Invest in the summer of 2015. They have been very helpful with information and updates through this disaster.

The home was flooded with approx. 5 feet of water throughout. I have no idea what the costs are going to be associated with this yet.

My homeowners insurance doesn't cover for flood and FEMA declined to provide assistance because it is not my primary residence.

Looking for some advice and maybe the contact info for a Texas real estate attorney....

1. The house is worth $145k.....Does it make sense to spend $50k or more on repairs??

2. Should I consider walking away from the mortgage and letting the bank foreclose?

3. Any other suggestions?

Thanks for any advice.....

Concerned..

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y

I am sure MI will do everything in their power to assist you in this act of god event.

 I would caution U on just walking away.. Texas is a dual action foreclosure state.. they can and do go after deficiency judgments .. and the only way out would be a personal BK

You want to be in talks with them and negotiate out if your going to just try to short sell the property..

now during the financial crisis the fed's stayed the deficiency judgment rules on mortgages .. maybe they will do that for flood victims.. although it might only be owner occ's that get that treatment as investors are in a different class .

I would also caution you on getting a lawyer that could just be throwing good money after bad.. Only way I would do that is if YOU HAD flood insurance and they were denying it.. but if you do not have flood insurance and fema does not have a responsibility to cover non owner occ.. then that's the risk of being an investor.. you have to deal with it as bitter of a pill that is to swallow.

Other wise just rebuild and hopefully rents will be strong and your cash flow will allow you to recoup what you put into it over the coming decades.

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  • Steven D.
    Investor · Arvada, CO · Member since 2017 · 109 posts · 112 votes
    9y

    Sorry for your loss. Have to look at the numbers to make a better decision. Is 145k the ARV? How much equity would you have in the house if you chose to do the repairs out of pocket?

    In either case I would not let the bank foreclose. I would try to work with them to Short Sale or DIL as this would be much better for you credit and future buying power. 

    Additionally, I would talk to others that are without flood insurance and get denied by FEMA for whatever reason. There will be a plethora of people in your situation and I think that banks will be willing to work with people rather than taking on large losses. Best of luck!

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    I am sure MI will do everything in their power to assist you in this act of god event.

     I would caution U on just walking away.. Texas is a dual action foreclosure state.. they can and do go after deficiency judgments .. and the only way out would be a personal BK

    You want to be in talks with them and negotiate out if your going to just try to short sell the property..

    now during the financial crisis the fed's stayed the deficiency judgment rules on mortgages .. maybe they will do that for flood victims.. although it might only be owner occ's that get that treatment as investors are in a different class .

    I would also caution you on getting a lawyer that could just be throwing good money after bad.. Only way I would do that is if YOU HAD flood insurance and they were denying it.. but if you do not have flood insurance and fema does not have a responsibility to cover non owner occ.. then that's the risk of being an investor.. you have to deal with it as bitter of a pill that is to swallow.

    Other wise just rebuild and hopefully rents will be strong and your cash flow will allow you to recoup what you put into it over the coming decades.

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    2Reply
  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    9y

    Do you have an idea of the neighborhood damage? Will it be livable if you do your repairs? Rent should increase and if you can swing the repairs, might still pencil out in your favor.

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  • Kevin Wood
    Investor · Houston, TX · Member since 2013 · 471 posts · 267 votes
    9y

    @Jeff McIntyre I'm so sorry for your loss. There are a few options that you can pursue to get some money for your property even if you don't have insurance. 

    0Reply
  • Jeff McIntyre
    OP
    Investor · Seattle, WA · Member since 2015 · 10 posts · 9 votes
    9y
    Thanks for the replies and advice.... I'm not interested in foreclosing but I'm just trying to understand all of my options. I've already got 25% equity in the house....not sure how bad the rest of the neighborhood is and/or how long it might take to get the home rentable again. It's still early and I don't have all the estimates for damage repair.
    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Jeff McIntyre  do you have rent interruption insurance at least ? 

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  • Jeff McIntyre
    OP
    Investor · Seattle, WA · Member since 2015 · 10 posts · 9 votes
    9y

    No I don't have rent interruption insurance

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  • Albert L.
    Investor · Temple City, CA · Member since 2016 · 47 posts · 11 votes
    9y

    I'm sorry to hear that. Hope the bill is not too bad, but at least you know MI will be do everything they can to be helpful.  

    What zip code was your property in? I have one with MI in Houston too and I got lucky mine was ok...I think . 

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  • Jeff McIntyre
    OP
    Investor · Seattle, WA · Member since 2015 · 10 posts · 9 votes
    9y

    thanks Albert....I have two with MI in Houston...one was fine but the one with severe damage was in 77073

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  • Account Closed
    Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
    9y

    @Jeff McIntyre  Not relevant now , but out of curiosity, was this in  any type of flood zone? 

    0Reply
  • Jonathan Jewell
    Investor · Bensalem, PA · Member since 2011 · 146 posts · 93 votes
    9y

    I really hope your tenants are ok, and find suitable housing during this crisis.

    0Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Account Closed , the OP did not mention not returning the entire deposit.

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  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    9y
    Originally posted by @Jeff McIntyre:

    I own a single family rental property in Houston that was ravaged by Hurricane Harvey. I bought the home from Memphis Invest in the summer of 2015. They have been very helpful with information and updates through this disaster.

    The home was flooded with approx. 5 feet of water throughout. I have no idea what the costs are going to be associated with this yet.

    My homeowners insurance doesn't cover for flood and FEMA declined to provide assistance because it is not my primary residence.

    Looking for some advice and maybe the contact info for a Texas real estate attorney....

    1. The house is worth $145k.....Does it make sense to spend $50k or more on repairs??

    2. Should I consider walking away from the mortgage and letting the bank foreclose?

    3. Any other suggestions?

    Thanks for any advice.....

    Concerned..

     I am sorry for your loss.

    Maybe I am old school, but if I could possibly pay a loan, I would.  I feel like my word is my bond, and when I am taking on any loan, I will go to the nth degree to find a way to pay it back.

    I think your biggest question what is your return for every dollar you invest into rebuilding?  If you put in $50K and the place goes up $51K in value, then you put the money in.  Otherwise you bulldoze or sell it as is.

    2Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Jeff McIntyre contact the mortgage holder and understand what your options are for payment deferral. You may be able to avoid payments for 6-12 months. Interest will incur during that time. I would also talk to them about short sale options. Find out if you do a short sale, if you are responsible for the difference. It may be a situation where they tell you that you are responsible for the difference, then four or six months from now, they may change their mind. Often if you just wait it out, the bank will become more interested in negotiating. Call them every couple weeks and ask again if they are agreeable to a short sale where you are not responsible for the difference. If you can manage a short sale and walk away just losing your down payment, that might be easiest.

    First order of business at the property is to remove all wet  and water damaged materials. Setup fans and dehumidifiers to get the moisture out so you can prevent mold. 

    Other considerations are insurance on the vacant property. Will your current provider drop you since the property is damaged and vacant? Security is a concern, so you may want to look at adding a security system.

    You mentioned the property is worth $145K. Was that market value prior to the flood? Assuming a full renovation, it is likely to be worth more after rehab. In fact the entire neighborhood could go up in value as this flooding is effectively an urban renewal program. A street full of completely renovated houses isn't a bad thing, which could be an argument for holding on.

    Good luck and keep us updated.

    0Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    9y
    Originally posted by @Account Closed:

    @Jeff McIntyre Let your tenant out of the lease and return 100% of their deposit.

    Only if they remove all their belongings 

    1Reply
  • Drew Shirley
    Attorney / Multifamily Investor · Houston, TX · Member since 2009 · 173 posts · 136 votes
    9y

    Jeff, if your property was flooded due to the controlled releases of the Barker/Addicks reservoirs, you may have a claim for inverse condemnation for the reduced valuation of your property. Feel free to PM me for more info.

    1Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    I took it upon myself to check my own insurance policies last night and wouldn't you know it, my auto policy was cancelled almost a month ago because my credit card had changed due to hacking. While most companies seem to manage to charge my card anyways even when the card numbers change, my insurance company did not....Glad I caught it...

    0Reply
  • David S.
    Investor · Prairieville, LA · Member since 2015 · 311 posts · 424 votes
    9y

    You could get it turned around in 4 to 6 weeks with a daily presence, meaning you or someone you can trust to make sure the work is being done and materials are getting there. Since it is a declared national disaster, you can get a 3 month forbearance on mortgage payments. If you apply for FEMA aid as an investor, you can get low interest SBA loans (about 4%) for the rebuild. I would strongly recommend against any adverse credit options, like foreclosure or short sales. It will take 7 years to get your credit back. You will lose money, but I think it would be best for the long term. You just don't have enough equity to unload it to another investor.

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