My house caught fire while planning to short sale it. What happens to the insurance money once it's received from insurance company.?

Asked by Shakilrah, 60419 Wed Feb 16, 2011

Will the mortgage company use the insurance money to make the repairs on my home for the short sale, or will they apply it to the delinquent mortgage and foreclose on my home?

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6
Ranj Mohip, Other Pro, Chicago, IL
Thu Feb 17, 2011
It depends on whether you were in default or not at the time of the fire, and on who made the claim with the insurance company. Your mortgage (if it was a uniform mortgage) will allow them to apply the proceeds to the unpaid mortgage, but you have to convince them not to.

The information in this answer provided by Attorney Ranj Mohip is general information and is not intended as legal advice, nor does the attorney intend to create an attorney-client relationship with any reader by answering this question or otherwise contributing as a member of Trulia.com.
3 votes
Dallas Texas, Agent, Dallas, TN
Fri Feb 18, 2011
You need confer with lender and insurance company.

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
972-699-9111
http://www.lynn911.com
0 votes
John Walin, Agent, Libertyville, IL
Fri Feb 18, 2011
Ranj gave a great answer! You do need personal attention of a lawyer to help you navigate the short sale/foreclosure/possible bankruptcy and now fire insurance claim. thumbs up to Ranj!
0 votes
John Walin, Agent, Libertyville, IL
Thu Feb 17, 2011
Yup, you need a real estate attorney already if you are working the short sale/foreclosure and not certain about your rights to adminster repairs on a home you are in default on.
0 votes
Suzanne MacD…, Agent, Succasunna, NJ
Thu Feb 17, 2011
You really need to check with a good real estate attorney, however, my understanding is, until the day the bank actually forecloses you are still the owner of the home. I had a small house fire some time back, I was not in a short sale situation so I am not sure how that will effect you, but I know in my case the insurance company paid the contractors directly to do the repairs to the house and then paid me for the contents. I doubt that the bank would have legal standing to take any of the money to pay delinquent mortgage payments. The purpose of the insurance is to make sure the bank's asset, your home, does not lose its value. That will be accomplished when the repairs are done.

Definitely talk to an attorney. Let the insurance company do the repairs as they would under a normal situation, find a good realtor experienced with short sales and put the home on the market.
0 votes
scott farmer, Agent, Scottsdale, AZ
Wed Feb 16, 2011
I'm sure there will be a thorough investigation by your insurance company before the claim is paid due to the amount of insurance fraud as another side issue to the mortgage crisis. So, the check may not be coming soon. Sounds like your home was not on the market yet and it's not clear if you are in the foreclosure process so it's hard to really answer this exactly but, if there is money received by you from the insurance company and the home has foreclosed then expect the bank to collect it from you.

Good luck,

Sandy Farmer
Realtor, GRI, CSSN
John Hall & Associates
Web Reference:  http://homesales411.com
0 votes
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