Does homeowners insurance pay off your mortgage if the house is lost?

Answer

NO!

You still have to make payments on the mortgage, pay for living expenses if more than the stipend provided to you by your insurance company, and buy all the stuff you lost in the fire.

Answer

What if you own the home free and clear with no mortgage? What would the insurance payoff there? It all depends on how the policy is written. I've heard of them being written to replace the home and contents. While that won't pay the mortgage, it would replace the home with a similar value property. Of course re-building is usually cheaper (for modern homes anyway) so that would probably be the way they would want to payoff. And of course there is insurance that pays off the mortgage if the homeowner is lost.

Answer

There is a kind of policy that only pays off your mortgage. Let's say you stop paying your home owners insurance, or you get dropped and don't replace it or something. Your mortgage company will place a "forced policy" (it might be called something different) and tack the cost on top of your mortgage payment.

I've heard of people getting this kind of insurance retroactively. For example, someone I know someone who got their bill, sent a payment and thought all was well since he was paying through an escrow account. The insurance company said they never got the payment and they had been dropped 9 months earlier. After fighting it for months, he eventually got the mortgage company to back date a policy to cover their mortgage. (I think it's a good case against the mortgage company, but I'm not a lawyer so who knows.)

Another family sent their payment in a few days late, but prior to a fire that burnt down their house. The insurance company wouldn't cover them because the payment was late, but the mortgage company found a company to back date a policy to cover their mortgage.

Homeowner's insurance pays for the rebuilding of the structure and the contents therein. When a mortgage is owed the reimbursement check is made out to the homeowner's and the lending institution.

The backdating of insurance coverage of any type, homeowner's, vehicle, etc. is illegal under both state and federal laws. Persons engaging in such an act can be charged and prosecuted under criminal statutes and also be sued in civil litigation.

ANSWER 11/07/08

Yes, if the home is a total loss, the mortgage is paid first before the money is disbursed to the owner, usually the check is issued with both the owner and the mortgage company as payees. If you look at your homeowner's declaration you will see a mortgagee clause on there. The mortgage company requires that clause to be added before they will close your loan. So there is no way for the property owner to take the money and run and leave the mortgage company with a worthless property as collateral for an unpaid mortgage. You must however continue to make your monthly mortgage payment until the insurance settlement comes through. If you miss monthly payments you can wreck your credit just when you need it most.

First answer by anonymous. Last edit by Britefutr. Contributor trust: 0 [recommend contributor]. Question popularity: 166 [recommend question]