lender recourse if condemned?

[Brian Essex]

Does anyone know if a lender has the right to recourse if the home suffered from a natural disaster (flooding) and is now condemned? My investment property can be short sold for only the value of the land and this will result in a 100K loss, I wanted to know if there is any protection from lender recourse due to the flooding and present condition of the property.

[Bill Gulley]

First sorry for the bad news.

Your security agreement or deed of trust will have language somewhat like this:

Borrower agrees to maintain and keep in full force and effect a policy of insurance acceptable to the lender, while any principal herebt secured remains outstanding, insuring the subject collatefal property against all insurable perils, and if at any time Borrower fails to......

The borrower is responsible to obtain and maintain insurance against all perils insurable. If in a flood plain, the lender will require flood insurance, if it is not, it is optional. The same hold true for earth quake coverage, policies are available and it is up to the borrower to insure against such peril. If the borrower elects not to cover against other "insurable perils" the borrower has assumed responsibility.

Now, let's say the country of Zimobangbang declares war on the US and bombs your house. Insurance policies are not gerenrally available for such a peril and acts of war are excluded from insurance policies, in that category of Acts of God. In that case, a loss while is still your obligation to pay, you might have a leg to stand on, at least to get to bankruptcy court.

So, sorry to say, you should have had flood insurance.

Now, relief, if the Governor of your state declared a disaster in your area, you will likely be eligible to apply for relief for damages through your emergency management office. This was the case in my area a couple years ago due to an ice storm (the ice melted and flooded many areas that were not in the 100 year flood plain). So, maybe good news!

Believe it or not, B of A actually took much of the loss on flooded properties arising out of that storm (and indemnified by the government) due to the disaster. So, there was no recourse claimed. So, maybe some more good news!

More good news, state law may trump the deficiency in your state as an Act of God issue, so check with your local attorney! And,

Since the property has been condemned, another policy exclusion, it may be an impossibility to perform as you may net be allowed to rebuild there, in which case, the jurisdiction will likely buy you out as required by law!

So, In fact, check with your attorney regardless!

But, if it was just your house or maybe a few in that area, you may have to pay the debt.

Good luck on it!