The recent wildfires in Southern California are a reminder that disasters strike people on many levels. They subject families to danger, upheaval and personal loss.
However, if your house is destroyed, you aren’t freed from your financial obligations as a property owner. You still face mortgage and property tax payments. Still, it’s not business as usual either. You can get help with property tax and mortgage payments.
What Happens to Your Mortgage if Your House is Destroyed?
Even if your house has been destroyed, you still owe the remaining balance on your mortgage.
“Homeowners are still obligated to pay their mortgage unless they receive specific relief from their lender. Mortgage payments are tied to the loan agreement, not the property’s current condition,” says Zev Freidus, president of ZFC Real Estate in Florida.
This means you will still be expected to make any regularly scheduled mortgage payments unless you come to another arrangement with your loan servicer.
Note that even if you have mortgage insurance, this will not cover your payment obligations for you. Mortgage insurance is designed to protect mortgage lenders, not borrowers.
If you stop making mortgage payments, you’ll be considered late, which can damage your credit. You could eventually default and lose your property. In places like Southern California, where much of the property value comes from the land rather than its structures, you should take care to avoid this outcome even if your home has been destroyed.
Can I Get Disaster Relief from Mortgage Payments?
The most likely form of relief from mortgage payments is disaster mortgage forbearance. This is simply a temporary suspension of your mortgage payments. Disaster forbearance is not automatic; you need to contact your mortgage servicer to discuss your options if you’re having difficulty affording your mortgage.
“There is no guarantee that the bank will grant the request, but if they do, they will add the additional months to the end of the mortgage term,” says Neama Rahmani, president and CEO at West Coast Trial Lawyers.
Mortgage disaster forbearance is generally temporary. According to Freddie Mac, you’ll have several options for making up the missed payments. They include:
— Lump sum payment: Repay the missed payments in one lump sum to cover the total amount owed.
— Repayment plan: If you can resume monthly payments and pay extra to make up the missed payments, you may be able to arrange a repayment plan with your servicer.
— Payment deferral: If you can resume regular monthly payments but can’t afford a higher amount, a payment deferral will add the missed payments to your loan balance and bring your mortgage current immediately.
You may also be eligible for a mortgage modification. A mortgage modification permanently changes one or more terms of your mortgage to make it more affordable.
For example, a Fannie Mae or Freddie Mac mortgage modification might lengthen your repayment period, reduce your interest rate or even adjust the principal balance. This could lower your monthly payments and reduce the total amount of interest you’ll pay over the remainder of the mortgage.
Can I Get a FEMA Mortgage Modification?
According to the Federal Emergency Management Agency’s website, assistance from the agency is limited to home and personal property repair and rental assistance for temporary housing. It doesn’t assist with mortgage or rent payments if you stay in your damaged home.
You can’t get a FEMA mortgage modification. However, you may be able to get other forms of housing assistance from FEMA if your property has been damaged by a federally declared disaster.
— Rental assistance: funds to cover rental housing while you’re displaced from your home
— Lodging expense assistance: reimbursement for temporary emergency lodging expenses caused by a disaster
— A temporary housing unit if other accommodations are not available
— Home repair or replacement to help with uninsured costs
FEMA also offers Disaster Unemployment Assistance if you lose work because of a qualifying disaster.
What Should I Do if I Can’t Make a Mortgage Payment Because of a Disaster?
If you can’t make a mortgage payment on time, contact your mortgage servicer immediately. The mortgage servicer is the company you send your mortgage payments to every month.
The type of relief available depends on that servicer. However, especially in cases where there has been mass destruction of property, servicers are likely to offer some kind of a break. The last thing that they want is to suddenly have a wave of defaults on their books.
Federally backed loan programs have lender guidelines for disaster mortgage relief. For example, Fannie Mae lenders are authorized to reduce or suspend mortgage payments for up to 12 months in the event of a disaster.
Do I Still Owe Property Tax if My House Is Destroyed?
The short answer is yes. However, a natural disaster is likely to affect how much tax you owe and when you must pay it.
Property tax is typically assessed and collected at the county level. There are two things you should be aiming for:
— Get the tax collector to agree to a delay in your payments.
— Have your property reassessed if damage has reduced its value.
“Homeowners should check with their local tax assessor’s office for the specific process and deadlines for requesting reassessment,” says Freidus.
What Property Tax Relief Is Available?
This depends on your county’s laws and policies. In places that are especially vulnerable to natural disasters, there are likely provisions for emergency property tax relief. All California counties have adopted such ordinances.
These ordinances may enable homeowners to apply for a delay in paying property taxes and for a reassessment of the property’s value to reflect the damaged condition.
This reassessment would probably involve only the house and other structures, not the value of the land on which they are situated. Even if your house has been destroyed, you may still be assessed a significant amount of property tax.
What Should I Do if I Can’t Pay My Property Tax Because of a Disaster?
You’ll need to request relief, and the process is likely to involve some paperwork. A simple phone call probably won’t do it. Filling out forms might seem like a nuisance, but it’s for your protection. It provides proof that you notified the tax collector of your need for relief.
The process will depend on your county. In Los Angeles County, for example, a homeowner seeking disaster-based property tax relief must file an Application for Reassessment of Property Damaged or Destroyed by Misfortune or Calamity claim.
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If Your House Burned Down in the L.A. Wildfires, Do You Still Have to Pay Your Mortgage? originally appeared on usnews.com