If your home is destroyed by a natural disaster, the last thing you likely want to worry about is your mortgage, but that concern should be at the top of your list. It’s important to realize that if your home is destroyed you are still obligated to pay off your home loan. You may be able to take advantage of several options to defer or reduce those mortgage payments, but you can’t walk away from them without severely damaging your credit.
Update your homeowner’s insurance
The looming possibility of earthquakes, tornadoes or hurricanes is why homeowners with a mortgage are required to have hazard insurance. It is essential that it be up to date, covering all the improvements you’ve made to your property. There are numerous insurance options to choose from, starting with basic dwelling insurance—that protects the structure—to a plan called Brand New Belongings, offered by Nationwide Insurance which provides full replacement value of personal effects.
Once you’ve called friends and relatives to assure them you’ve survived, speak with your insurance agent to start the claims process. During the conversation take extensive notes. Be sure to ask for a copy of your policy if you lost that as well. To forestall losing important documents like birth certificates, keep them off site in a secure location like a safe deposit box.
Recovering from your damaged home
1. Take multiple pictures of the damage
Evidence in the aftermath can change quickly as first responders look for victims and debris removal teams roll in. Be sure to back up the images, both on disc and with prints. They are the key to your claim and you don’t want to lose them.
2. The help you get depends on the size of the disaster
The president can declare an emergency declaration for any occasion when federal help is needed. He can make a major disaster declaration for any natural event of such severity that local governments are overwhelmed. With a disaster declaration, federal help will start to flow through the Federal Emergency Management Agency (FEMA) where individuals can apply for assistance.
The Federal Housing Administration (FHA) usually places a 90-day freeze on foreclosures of FHA-insured loans in a federal disaster area. After Hurricane Sandy both Fannie Mae and Freddie Mac told their servicers to help homeowners. If you hear of such an action after your disaster, you can see if your mortgage is owned by Fannie or Freddie by visiting their websites. Use that fact as leverage when talking with your own servicer, which should be your next call.
3. While speaking with your servicer, again take detailed notes
See what you can do to work out a mortgage forbearance so that you can suspend payment on your mortgage until you get back on your feet. The programs each lender offers will vary. The help you get will depend on your past payment records, current financial picture and future prospects. In some cases the payment suspension can last up to six months. Try to avoid having to catch up with a lump sum when the forbearance is over.
Unfortunately, if you are already in the midst of a loan modification, there’s very little you can do except to maintain your current payments, because being late would violate the terms of your loan workout.
The big thing to keep in mind is to not lose heart. Remember that the lives of your family are worth far more than any material goods you lost.
Paul is a freelance writer for MyBankTracker.com who focuses on homeownership and money issues. He is an expert in mortgages and real estate.