← The David Greene Show
Loading summary
Transcript15 lines
- [00:00]
David Green
What's going on, everyone? I am David Green, host of the David Green Show. I'm here with Christian Bashelder, my partner in the one brokerage and the broker of the one brokerage. And this is Mortgage Monday, the show where we bring you relevant insights, data, news and facts that are going on in the industry to help you make better financing decisions for your real estate. Christian, how's it going over there?
- [00:22]
Christian Bashelder
It's good. It's gonna be a fun episode. I'm gonna talk to you as Christian the insurance broker instead of Christian the mortgage broker. So we're gonna. Well, we'll have some. A little bit different stance on advice on this episode. It'll be a fun one.
- [00:32]
David Green
That is right. He's a man of many, many talents. In fact, we actually were very close to starting an insurance brokerage of our own. And then the insurance industry went absolutely knocking futs, if you don't mind me saying so, and stop that from occurring. But we hope one day to be able to offer insurance as well as mortgages and hopefully in the future real estate brokerage for agents to hang their licenses at. So he and I are working on that as if we don't have a bunch of other things we're working on. But once we are licensed, we're so.
- [01:01]
Christian Bashelder
Bored, we're ready to start new companies, right?
- [01:03]
David Green
Yeah, that's exactly right. I have nothing to do. Christian's growing out of beer just to entertain himself. But one of these days when we stop being lazy, we will start a brokerage and we'll be having agents that can come as well as loan officers and offer insurance. And we will be real estate mortgage and insurance, the one brokerage where we provide it all. Today we are going to be talking about what happens to your mortgage if your house is destroyed. We saw this on Nerd Wallet. I thought it was fascinating. Christian agreed. Let's talk to the people who have a mortgage about what happens if their house gets destroyed.
- [01:35]
Christian Bashelder
Yeah, really, really current event driven, especially with obviously all the unfortunate things that happen in Los Angeles, which is my backyard, as well as even dating back in the last year with Florida with the trio of hurricanes that came through up into North Carolina. I mean, that just places were just wiped off the mat. It's like, it's incredibly tragic. But one thing to at least get some good information out there is how to properly protect yourself. Right. And that's the, that's the point of this, of this talk. Most people have a mortgage on their property. There's obviously a lot of people that have it paid off. And in that case, you can choose to hold insurance. But if you have a mortgage, insurance is required. Let's just straight across all the, the entire sector. Now, obviously the question becomes, if there's no house, what do you do? Do you keep paying it? Do you have to keep paying it? Is there coverages that prevent you from having to pay it? It's really good questions and one that we definitely saw a spike and questions being asked. To me, obviously, being in Los Angeles, people know that it's, you know, obviously we were around the, what, four or five different fires that happened in that same week during the Santa Ana winds. That was a crazy week, evacuating family and everything else we had to go through. But regardless, it's important to know the biggest thing that I can tell you guys. Obviously, your insurance coverage, that's important. Can you rebuild? That's, that's very valid. But if you guys check out, we'll link this in the description. Check out this, this Nerdwatt episode. They summarize it very well. First thing you can do is you can call your lender, many lenders, and that's just the number on the back of your mortgage statement. Many lenders do have options during catastrophes and during, you know, big losses, right? Fires, hurricanes, windstorms, tornadoes, stuff like that, where they'll offer either a deferral or forbearance on your payments. Now, this isn't a for sure thing. Not every lender has to do it. They're not legally mandated to do it. Some lenders just offer it right? Now, that's not a forgiveness of your payments. It's basically tacking on your payments to the end of your loan, right? So you're curing interest in that time. They're just kind of doing you a solid by not demanding payments during that period. It's the same thing. A lot of people got familiar with the term forbearance during the student loan forbearance. It didn't mean your student loans were forgiven, they were just deferred, right? So be careful with forbearance because you're not actually eliminating that debt, Right? It's stacking on the back end of your loan. But that's number one. Number two, if you scroll down here, David, there is a very, very, very important coverage on your homeowner's insurance and on a primary residence, it is referred to as loss of use. Okay. The primary isn't. That's where you live on an investment property. It may be titled, like rent coverage. Or loss of rents or operating expenses, something of that nature. What this coverage does though, and what most people don't understand is built into your insurance policy is the cost of the structures. Sure. The cost of rebuilding. Sure. The cost of pulling new permits and zoning and ordinance. Sure. That's always covered. What is also covered, what do you do during the rebuild? You can't live there. You have to go live somewhere else or your tenants have to go live somewhere else and you lost your rental income. So insurance policies have a clause built in that the insurance company will also reimburse you the cost of that loss during your period of being displaced. Right. So let's say I was in California, in Los Angeles, my house burned down, I have to go now, rent an equivalent house. Renting those houses you guys can imagine in Pacific Palisades, $15,000 a month, something crazy. Right. So the insurance company will cover me up to what my limits are on my loss of use coverage for the time that I'm displaced. And that's usually either between a one to a two year time period that they will cover your living expenses. Now that could be rent, that could be. A lot of times there's personal property protection to repurchase, your clothing, your TVs, your sofas, all that because you have to be reimbursed for the cost of. But the biggest thing is if you have a limited loss of use coverage and you have to be displaced, you either have to rent a place significantly worse than where you were living or you have to pay it out of pocket. And that could be very expensive at last minute notice as unfortunately a lot of what we saw in Los Angeles is that rent prices skyrocketed because there was this surge of people in the rental market. Now I think that's very immoral and dishonest that all of a sudden there's all these people displaced from a fire home and there's 30% increases to rents. That's a conversation for a different day. But the point of the matter is you still have to ensure that loss that you're realizing on investment properties. The same thing. If your tenants now aren't paying you rent, you have to be reimbursed for that lost rent so your insurance company will actually pay you your rental income while they're rebuilding the property. Very important. If you were going to skimp in one portion of your insurance clauses and your policy protections, I would not skimp on loss of use or loss of rents coverage. Very, very, very important. And that's what guarantees that you can Continue your life in the same fashion where you were living prior to the house. Whatever happening, burning down water, hurricanes, whatever it was, make sure you're looking out for that on your. On your policies.
- [06:54]
David Green
All right, what about people who they don't have what you're talking about? Do they need to keep making their mortgage payments if they don't have a house anymore? How does that navigate it?
- [07:06]
Christian Bashelder
Yeah, good question. So the point of this is so that a portion of that loss of use can go towards paying your mortgage, or if it's a rental, that loss of rents can continue paying your mortgage. Because to answer your question, David, yes, you are still fully obligated to making that mortgage payment. Unless my first point was negotiating a forbearance with your lender. But yes, you are completely obligated, still 100% committed, legally speaking, to making that mortgage payment, even though there is not a house there anymore. It's very unfortunate. That's how the law works, and that's why these insurance coverages exist, to recoup your ability to keep paying that mortgage even though the house is gone during the period of it being rebuilt.
- [07:47]
David Green
Okay, so you're obligated to make your mortgage payment and you don't have a house to live in anymore. And let's say someone says, well, I can't make the payment or I'm not going to make the payment. The lender would normally foreclose on the property as security to pay off the debt. In this case, they're foreclosing on, let's say, rubble or ashes. What actually happens to the borrower? Is their credit affected? Is it just like a normal foreclosure? Can they come after the borrower for other assets that they might own?
- [08:17]
Christian Bashelder
Well, it's a little tricky because they would actually foreclose on the insurance policy. Right. So that insurance policy is paying out to rebuild the house. The lender would foreclose on that. So the lender would rebuild the house. Right. Now, obviously, if the borrower was unable to pay and the insurance was not covering those missed payments during that period, that's where you get into a tricky thing. Absolutely. The lender would foreclose on the rubble and the buildup plans to rebuild. Now, whether or not the lender wants to do that, there could be a position where everybody loses here. The lender loses, the borrower loses, and the insurance company loses. Right. Which is why these things are so tragic, is that there's no winner. There's no winner when an entire city burns down, obviously. Right. But the lender is completely within their reason to report that to the borrower's credit, to potentially foreclose. Absolutely. That's. That's things that have happened, and I'm sure stemming from these recent events will probably happen, unfortunately.
- [09:15]
David Green
And that is why so many lenders require you to have homeowners insurance on your property, because they want to make sure that the insurance covers them and they have an asset to foreclose on if you stop making the payment. They also probably want to make sure that you don't stop making that payment, which is why homeowners insurance is important. And it's such a bad situation that we're in with so many insurance providers leaving certain states and the premium's going up because some people are not choosing to have homeowners insurance because they feel like it's too expensive. Other people like you and I can literally forget that our insurance lapsed. That happens when you get busy and if it's not tied to your mortgage and you're paying it outside of it. I've had several times where I found out that properties didn't have homeowners insurance that I wasn't aware of, because who knows how you get notified, Right? The stacks of mail that we get are astronomically ridiculous. And it can get easy to lose that type of stuff in the wave that's coming. So what's your advice for people when it comes to setting up an impound account to have their taxes and insurance collected with their mortgage or not?
- [10:17]
Christian Bashelder
Yeah, typically, you know, I would say if you are, you know, being challenged with keeping track of bills, you know, making sure property taxes or home insurance is paid, you should impound account. You should have the lender do it on your behalf. Now our next episode of Mortgage Mondays, we'll discuss what can go wrong even if your lender does impound. Right. So put a pin in it. We'll discuss that one next time. But my recommendation will typically be to impound. The lender is going to the majority of the time, 99 plus percent of the time, they're going to be making that insurance and that tax payment. Right. Like I said, we'll discuss what happens when they don't on the next episode. So a little cliffhanger there for you guys. That'll. That'll be a good one for you all as well. Just advising you on how to keep track of these things. They're very important.
- [11:05]
David Green
All right, there you have it. This is how the sausage gets made in the world of lending, and we're bringing it to you. Ron uncut with all of its nastiness. Because sometimes real estate is not fun. Sometimes you have natural disasters, sometimes you have floods. Sometimes you have all kinds of different things that can happen. All right, before we get out of here, Christian, for people who want to get a loan, for people who are thinking about buying property, for people who have family members that they don't want to get ripped off, where can they go to find out more about you?
- [11:34]
Christian Bashelder
Absolutely. Yeah. Find anything more about our company@the1brokerage.com and if you want to reach out to me directly, I'm on Instagram. Best way to catch me at the one Broker underscores in between the words so theore one Broker. That's where you can find me.
- [11:49]
David Green
All right. You can find me on instagram @david green24. Or you can check out davidgreen24.com to learn more about me or realtalk realestate.com to learn more about the show. Thank you everybody for listening. We know that you could be getting your information anywhere, but you're getting it from us and we really appreciate you. Please take a minute to subscribe. Subscribe to the channel so you get notified about new episodes coming out and leave us a comment and let us know if you have a question that we didn't get to. We will watch those and try to answer those questions on future episodes of Mortgage Monday.