November 21st, 2019
Mortgage Options Following a Natural Disaster
Natural disasters can affect many facets of our lives. Folks may have damage to their home or find themselves out of work in the wake of a storm or flood. In any number of ways, natural disasters threaten the financial wellbeing of residents.
One particular problem is what to do with the mortgage after a natural disaster. Generally speaking, the mortgage still must be paid. However, there are a complicated set of ever changing rules that a mortgage servicer or lender must observe when dealing with a homeowner that falls victim to a natural disaster. Depending on the type of loan, the identity of the ultimate owner of the loan and other circumstances, the mortgage servicer may be required to offer disaster-specific mortgage relief to the homeowner, including a moratorium on foreclosure sales, the suspension of foreclosure eviction, the suspension of credit reporting, the suspension of late charges, mortgage forbearance, and loss mitigation options such as loan modifications.
Additional homeowner rights were recently granted by the U.S. Department of Housing and Urban Development (HUD) to those with FHA insured loans. These changes were intended to allow additional and faster relief to homeowners. HUD’s changes give homeowners who fall behind as a result of disasters but who recover their income, the ability to restart their former mortgage payments after completing a three-month trial modification plan. This is known as a "Disaster Loan Modification." Alternatives may also exist for those who wish to walk away from their loans rather than rebuild their homes and/or restart their mortgages with limited impact on their credit score. https://www.hud.gov/sites/dfiles/OCHCO/documents/19-14hsgml.pdf
Furthermore, mortgage servicers must follow a set of regulations, as well as the mortgage contracts, when distributing insurance proceeds to homeowners. These regulations are intended to promote fairness. The homeowner must be given the opportunity to rebuild with the insurance proceeds unless it would not be economically feasible to do so. In circumstances where the lender’s security remains substantially impaired and restoring the property is not economically feasible for the homeowner, insurance proceeds pertaining to the real estate are applied to the loan with any balance distributed to the homeowner. Insurance proceeds pertaining to personal property should be paid directly to the insured homeowner.
Unfortunately, it is not at all unusual for mortgage servicers, some more than others, to treat natural disaster victims badly, to ignore the rules or contracts and make their problems worse. In some of these circumstances, the mortgage servicers can be sued for their misconduct under federal or state law. If you are experiencing difficulties with your mortgage servicer, we recommend contacting experienced counsel to better understand your rights. Here's to hoping natural disasters stay clear of our region. If not, Bordas and Bordas will do its best to assist you.