Anyone Interested in Mortgages and Flood Insurance Issues?

As we watch these hurricanes unfold, questions have 'flooded' in to me around mortgages and insurance issues. 

If you do not choose to rebuild and you spend the flood insurance money on another house and walk away, is that legal?

Once the money is in your account no one can mandate that you use the money to rebuild - but if you have a mortgage on your home, any monies paid to you are generally paid by check to you and your bank. Banks have first lien on your home and many will demand that you rebuild. You may also be able to give the bank the monies received to pay down the loan. It's important to note that if you lose your insurance, or it stops for any other reason, your mortgage loan will be recalled, forcing you to pay in full. If you don't have a mortgage then you are free to do as you like with the money. Also note that if your home is not in a flood zone, the bank will not require flood insurance. Homeowner's insurance generally doesn't cover floods, so without flood insurance, you will have to foot the bill for damages yourself.

Do you think mortgage companies will change policy and make flood insurance mandatory in the near future? 

Hurricane Sandy is a perfect example of what happens after a catastrophe like we have just experienced with Irma. After Sandy, much of New York City and Long Island flood zones were re-calculated based upon where the worst damage occurred. It is likely that FEMA will re-visit flood zones in Texas and Florida after the last few weeks.

What refinancing would be available for a mortgage on a house that was destroyed in a hurricane?

There are FEMA loans that can be obtained at a low interest rate to help with the repairs. FEMA paid out $8.4 billion after Sandy. Some banks will begin a forbearance program for victims, and allow deferred payments. The SBA also has a loan program for repairs up to $200,000. There are ways to get help.  

Florida is saying that 80% of the houses in Florida do not have flood insurance. Comments?

Perhaps the goal should be an Affordable Flood Insurance Plan. Contact your congressperson.

-Melissa Cohn, FM Home Loans