Interesting article linked below, and a cautionary one for anyone who considers buying debt in natural disaster areas where the home's value is lower than the debt. With the home being "underwater" in both respects, why would a homeowner want to make their mortgage payment if they can't get their insurer to cover the repairs. Something to consider when you are buying debt in these areas..........
Interesting angle on things ... I'm wondering what happens to some of those homes and debt AFTER something like this happens. For example, if the insurance company declares the property a total loss, pays the homeowner the equity they are owed, does the insurance company then own the property sub to the bank financing, or would the insurance company also have to pay off the bank and own the property free and clear, and then sell it off similar to how a bank might with a REO?
Or alternatively if the owner walks away, and the bank decides to sell the NP'ing note ... does the insurance coverage convey with the note since the bank presumably required to be listed as additionally insured on the flood insurance policy (if the property was in the flood zone and one was required)? Does that mean that the new note holder/investor may also be entitled to some potential insurance settlement? It seems by the same logic that in theory and by the same logic that the note investor should also be insured against such a loss if they held the note BEFORE such a flood occurred as well ... that is why banks force place flood insurance if it lapses on properties in a flood zone, right?
@David Faulkner I don't have the answers to your questions, but I can say that, in this case, many of the homes that were flooded were not in flood zones, so there likely wasn't flood insurance.
Note: i am not an insurance agent
In cases where insurance covers the incident and the home is determined a loss of use, the bank gets paid first from the insurance policy.
If there is significant damage typically the insurance company does not cut a check until after the repairs are done - so in most instances if the house had $50k in damage the insurance company does not cut them a check without confirming the repairs were done.
Similar case is if a home burnt down. The above is contingent on borrower having proper insurance of course
Agree with @Chris Seveney - I had a fire at one of my rentals and the insurance check was written out in my name AND in the mortgage company's name. I had to endorse the check and turn around and mail it off to my mortgage company. Then my mortgage company had a list of things I had to submit, including inspections they performed, before sending back the money.
I would think anyone with flood insurance would have to go through the same process of working with the mortgage holder to get access to the insurance funds.
Now if the government steps in and offers money to affected homeowners, no telling what rules will or will not be in place around those funds.