Insurance Questions for Barrier Island (real estate, rental, attorney)

[ExNooYawk]

My sister has (had) two rental properties up the road from Seaside which were right smack dab on the water. They are both pretty much gone.

She bought them less than a year ago (I know, right?) but says she has flood insurance. I am wondering how insurance will work for her, since:

A) The houses themselves were on leased land
B) She paid $500k each for them, cash, but was going to tear one down for a rebuild cost of $150k.
C) The land under one property is pretty much completely gone and unbuildable.

What would the replacement cost be if there is no land on which to build?
Will she be eligible only for replacement cost or what she paid for the house?

[Chava61]

Originally Posted by ExNooYawk

My sister has (had) two rental properties up the road from Seaside which were right smack dab on the water. They are both pretty much gone.

She bought them less than a year ago (I know, right?) but says she has flood insurance. I am wondering how insurance will work for her, since:

A) The houses themselves were on leased land
B) She paid $500k each for them, cash, but was going to tear one down for a rebuild cost of $150k.
C) The land under one property is pretty much completely gone and unbuildable.

What would the replacement cost be if there is no land on which to build?
Will she be eligible only for replacement cost or what she paid for the house?

She should probably contact FEMA to get some of those answers.

[annerk]

Originally Posted by ExNooYawk

My sister has (had) two rental properties up the road from Seaside which were right smack dab on the water. They are both pretty much gone.

She bought them less than a year ago (I know, right?) but says she has flood insurance. I am wondering how insurance will work for her, since:

A) The houses themselves were on leased land
B) She paid $500k each for them, cash, but was going to tear one down for a rebuild cost of $150k.
C) The land under one property is pretty much completely gone and unbuildable.

What would the replacement cost be if there is no land on which to build?
Will she be eligible only for replacement cost or what she paid for the house?

She'll get the maximum value of flood insurance for each which is $250K--if she had insured for the max. Otherwise she'll get the limits of her flood insurance. That's it. Per her lease she will probably be responsible for removing all damaged portions of the structure and other debris from the property. What she was "going to do" doesn't matter.

She can take a loss on her tax return for the rest of the value, speak to a tax professional for details.

[ExNooYawk]

Thanks Annerk.

Does it matter if these were not her primary residences, do you know?

[annerk]

Originally Posted by ExNooYawk

Thanks Annerk.

Does it matter if these were not her primary residences, do you know?

The only difference is that if they were her primary she would have had additional insurance for her contents, she probably didn't for rental property. That's a max of $100K per property.

[ExNooYawk]

Thanks. I just thought of another question.

If the land is unbuildable, will she still get replacement cost, or whatever maximum amount is covered? Will they give her $250k to rebuild even if she can't?

[annerk]

Yes.

[ExNooYawk]

Thanks again.

If I were her, I'd take the money and run. Try and deduct losses from tax return if possible and consider it a lesson learned. No building within feet of the ocean.

[annerk]

Originally Posted by ExNooYawk

Thanks again.

If I were her, I'd take the money and run. Try and deduct losses from tax return if possible and consider it a lesson learned. No building within feet of the ocean.

She should speak to an attorney though about the lease portion. I can't address that as I know very little about land leases. I would imagine if the property has been washed away to see the lease ends, but that could be subject to interpretation. A real estate attorney will be able to answer that and any other questions she might have that in a one hour consultation for about $150. I would strongly encourage her to seek this representation and consultation.

[Robyn55]

Originally Posted by ExNooYawk

My sister has (had) two rental properties up the road from Seaside which were right smack dab on the water. They are both pretty much gone.

She bought them less than a year ago (I know, right?) but says she has flood insurance. I am wondering how insurance will work for her, since:

A) The houses themselves were on leased land
B) She paid $500k each for them, cash, but was going to tear one down for a rebuild cost of $150k.
C) The land under one property is pretty much completely gone and unbuildable.

What would the replacement cost be if there is no land on which to build?
Will she be eligible only for replacement cost or what she paid for the house?

I assume you're talking about federal flood insurance (and not insurance from a private company). If neither of these properties was her principal residence - she'll get the "actual cash value" of the properties - which is defined as:

The cost to replace an insured item of property at the time of loss, less the value of its physical depreciation.

Although she paid $500k for each property - it's not clear to me what the actual cash value of the buildings was (as opposed to the value of the leasehold - which isn't insured) - especially since you said she was planning to rebuild a new place on one lot for only $150k. Also - she may have flood contents insurance as well. I don't know the amounts of her coverage - but max is $250k building and $100k on federal flood. There's also usually a deductible (ours is $2k). It's best for her to contact the servicing agent on the policies to go over the details. Robyn

P.S. There are different rules for owner occupied principal residences.