Camp Fire repay or foreclose?

3 Replies

Hi All,

I have a friend who's house burned down in the Camp Fire. This person is 60 and has no savings and was well in debt. The insurance on the home appears to be enough to pay off the house and add enough to have some what of a retirement. The home loan owed to the bank was around 200k I believe the insurance pay out will be around 450k when all is said and done. 

I believe that California is a non-recourse state, if the insurance payout was all kept for retirement or rebuilding somewhere else and not used to pay off the debt, would go into foreclosure? Would the bank come after the assets this person will now have? Would a short sale be a better option or does this open the person up to the bank?

Looking at all options to come out on top of this terrible situation. I have to assume that the Bank has mortgage insurance on these items. Thanks for the insights or recommendations on who to contact.

Regards,

Steve

There likely is no option as the lender is also listed on the insurance so he wouldn't be able to simply cash it without paying off the lender.

Cali is nonrecourse only on a “purchase money 1st” mtg I believe, if he ever refi’d I believe that protection is gone.

Mtg insurance is greatly misunderstood, as it only covers the amount over an 80% ltv.....so no, the lender doesn’t get made whole....and even if they did, why should a mtg insurer get screwed out of $200k simply because the owner “didn’t want to pay off the mtg and keep the money instead”.

Cali is nonrecourse only on a “purchase money 1st” mtg I believe, if he ever refi’d I believe that protection is gone.

I think this is correct. But the bank probably has a clause in there somewhere that they will get their money, they are the lein holder after all.