When you get an insurance settlement after a fire, can you use the money to buy a new home instead of rebuild?

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home caught on fire . No one was in it. They believe they will be offered a settlement by their insurance company. Do they have to use it to rebuild, or can they demolish the burned house and sell the lot and then buy another house somewhere else?

5 Comments
  1. Reply
    Michael K
    June 30, 2011 at 4:29 pm

    It depends on who owned the house. If there was a mortgage on the house, the mortgage company will require the house to be rebuilt. Most mortgages have a clause in them requiring the insurance money to be used for rebuilding the house. If there’s no mortgage, the owner can do whatever they want with the insurance money.

    I hope that helps.

  2. Reply
    golferwhoworks
    June 30, 2011 at 5:24 pm

    yes once you satisfy any outstanding liens sure why not you will not own that lot any longer

  3. Reply
    Insurance Geek-ette
    June 30, 2011 at 5:36 pm

    You do NOT have to rebuild. HOWEVER. The initial settlement is only for the DEPRECIATED value of the house, MINUS any locally required demolition costs. So you don’t get a check for the full amount. Also, if you had a mortgage on the house, the mortgagee will be included in that check.

    So you CAN take the depreciated value, clear the lot and then get the demolition holdback, sell the lot and buy another house. But in that case, the insurance company pays out a lot less than if you actually rebuild on that lot.

  4. Reply
    Doctor Deth
    June 30, 2011 at 6:07 pm

    did you have a mortgage on the property? if yes, you still owe that money, so you can;t just walk away from it without paying off the mortgage – talk to the insurance company – they will tell you what you can and can;t do – don;t guess at it

  5. Reply
    Michael R
    June 30, 2011 at 6:38 pm

    It is their money free and clear to do whatever they want with it.

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