If You Are in Foreclosure, Do You Need Homeowner's Insurance?
The National Association of Realtors' HouseLogic website reports that foreclosure proceedings can last anywhere from two to 12 months. During this time frame, a homeowner's insurance policy can become due and lapse. While a mortgage is in good standing, the homeowner is responsible for maintaining property insurance on the property.
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Function
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Most homeowner's insurance policies are paid out of an escrow account, held by the mortgage company. This does not change during foreclosure proceedings. If the escrow account does not have applicable funds to cover the annual premium when due, the policy can lapse after 60 days of non-payment. At a point of lapse, the mortgage company will pick up payments or select a new carrier for homeowner's insurance. However, the mortgage company will not likely pay for the insurance policy without adding the payment into the foreclosure lawsuit, or emptying the homeowner's escrow account prior to the foreclosure being completed.
Significance
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Homeowner's insurance policies are designed to protect a property against major damage and/or theft. During a foreclosure, should the property become damaged while the homeowner resides there and the property is not adequately insured, the homeowner can be held liable for damages in the form of a deficiency judgment or bill once the foreclosure is completed.
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Prevention/Solution
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Homeowners facing foreclosure have options. The first step is to speak with your lender about foreclosure avoidance options and how to possibly keep their property. If there is a concern that the home owner's insurance policy will lapse while a mortgage is in default, speak to the loss mitigation department for the mortgage company about options.
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References
- Photo Credit home 3 image by Stacey Lynn Payne from Fotolia.com
