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Old 03-14-2018, 09:13 AM
 
Location: Cape Cod
9,801 posts, read 7,116,916 times
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Here on the Cape we have been hit hard with several recent storms that have caused excessive erosion along our beaches and is threatening homes.

Here is a hypothetical question.
A shores side home is valued through the assessors office at $500,000 but due to erosion concerns the property has a end date where the land will be in the ocean and the house torn down either by mother nature or the town and because of this the home sold for $200,000.

If a mortgage was taken on this property the mortgage company would require the property owner to have insurance. The mortgage company itself might also take out a policy on its own.
Would the insurance company use the assessed price, the purchase price, the mortgaged balance or would they consider the cost of replacement?

If they did insure the assessed amount and the property was destroyed by the encroaching ocean would the home owner first pay off the mortgage company for the $200,000 they owe and pocket the rest when there is no chance of rebuilding?
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Old 03-14-2018, 09:22 AM
 
Location: Ocala, FL
3,119 posts, read 5,751,064 times
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IMHO, the insurance company would use the replacement value and not the assessed value. The replacement value may not cover the full land value as they might offer the replacement value of the home on an alternate piece of land that may not be on the coast directly.

Hopefully someone with experience in the homeowner insurance industry will add to the discussion.
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Old 03-14-2018, 10:01 AM
 
10,271 posts, read 6,506,221 times
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Quote:
Originally Posted by Cape Cod Todd View Post
Here on the Cape we have been hit hard with several recent storms that have caused excessive erosion along our beaches and is threatening homes.

Here is a hypothetical question.
A shores side home is valued through the assessors office at $500,000 but due to erosion concerns the property has a end date where the land will be in the ocean and the house torn down either by mother nature or the town and because of this the home sold for $200,000.

If a mortgage was taken on this property the mortgage company would require the property owner to have insurance. The mortgage company itself might also take out a policy on its own.
Would the insurance company use the assessed price, the purchase price, the mortgaged balance or would they consider the cost of replacement?

If they did insure the assessed amount and the property was destroyed by the encroaching ocean would the home owner first pay off the mortgage company for the $200,000 they owe and pocket the rest when there is no chance of rebuilding?
I can't see a bank allowing a mortgage for this type of home. It would most likely have to be a cash buyer and I can't see an insurance company insuring it unless the premiums are astronomical.

that's my non professional hypothesis.

Mortgage insurance would pay the lender if you stop paying and foreclose, I would think you can't rebuild on that site so how could anyone insure it for other than land value that will soon be in the sea?
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Old 03-14-2018, 11:01 AM
 
28,384 posts, read 67,954,698 times
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This is not a new issue but it has gotten lots more attention lately --

https://www.insurancejournal.com/mag...7/10/22579.htm

Life's a Beach - Freddie Mac

The local rules on what can be rebuilt are a huge factor -- if the local authorities prohibit rebuilding the value diminishes by orders of magnitude -- https://ncseagrant.ncsu.edu/coastwat...stal-property/

Even if erosion is dealt with the concerns about sea levels may make some coastal areas a tenuous investment -- Washaway Beach tries to change its fate - Local News - The Daily Astorian
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Old 03-14-2018, 11:40 AM
 
3,038 posts, read 1,211,010 times
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Quote:
Originally Posted by LifeIsGood01 View Post
I can't see a bank allowing a mortgage for this type of home. It would most likely have to be a cash buyer and I can't see an insurance company insuring it unless the premiums are astronomical.

that's my non professional hypothesis.

Mortgage insurance would pay the lender if you stop paying and foreclose, I would think you can't rebuild on that site so how could anyone insure it for other than land value that will soon be in the sea?
Yeah I think that is the most likely scenario. I know some areas are essentially cash only due to storm damage/flooding. I have seen some up on the central FL Atlantic coast where they already have metal walls where the water hits during high tide, but if the tide gets too high, it will go up to the house. People were still doing renovation/tear down on these properties without addition setbacks. It is insane! Storm season is usually around king tides, so it is just asking for disaster.
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Old 03-14-2018, 05:22 PM
 
Location: Cape Cod
9,801 posts, read 7,116,916 times
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When the flood maps were updated thanks to the Katrina hurricane many home owners found themselves having to pay a much higher premium even being a mile or more from the beach.

The question wasn't that hypothetical because right now there is a house that is dangling on a cliff up the arm of Cape Cod due to the recent rather harsh Winter storms and unprecedented erosion. The property has lost over 30 feet of dune in 4 years!
The property was sold knowing it had a short life span where the average amount of erosion was 3-4 feet per year.
The buyer did get a mortgage but beyond that I don't know the details.

In this situation as has happened in the past the National Seashore gives the owner the option to move the house or to take it down. When the home owner removes the house they do still own the land that is now on the beach and they pay taxes on it but they can't really use it for anything so they will often give it to the Seashore.

I can't imagine that the owner of this property who has a mortgage will continue to pay for a property that is no longer there so they must have insurance on it. The bank with no doubt has insurance on their part in case the homeowner stops paying. We saw that a lot during the recession.

I was just wondering if the house has a mortgage it has to have insurance against lost and if the homeowner would actually get a payment to replace the house if it fell into the ocean. Maybe they would and maybe they wouldn't?

It is an interesting case.
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Old 03-14-2018, 05:39 PM
 
10,271 posts, read 6,506,221 times
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Quote:
Originally Posted by Cape Cod Todd View Post
I was just wondering if the house has a mortgage it has to have insurance against lost and if the homeowner would actually get a payment to replace the house if it fell into the ocean. Maybe they would and maybe they wouldn't?

It is an interesting case.
A home with a mortgage has to be insured. You don't pay the insurance directly normally, you pay it along with the mortgage payment and the property tax payment and it goes into escrow and is paid once a year.

When a home is destroyed the insurance has to build you a new one and you keep paying your regular mortgage. that's the norm, when the land is destroyed too and not rebuildable that I would not know. I would assume you get something because you are paying insurance on the home for yourself not for the bank, but the bank owns the home minus what equity you have.
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Old 03-14-2018, 06:57 PM
 
Location: Raleigh NC
7,766 posts, read 6,123,712 times
Reputation: 6893
Quote:
Originally Posted by Cape Cod Todd View Post
Here on the Cape we have been hit hard with several recent storms that have caused excessive erosion along our beaches and is threatening homes.

Here is a hypothetical question.
A shores side home is valued through the assessors office at $500,000 but due to erosion concerns the property has a end date where the land will be in the ocean and the house torn down either by mother nature or the town and because of this the home sold for $200,000.

If a mortgage was taken on this property the mortgage company would require the property owner to have insurance. The mortgage company itself might also take out a policy on its own.
Would the insurance company use the assessed price, the purchase price, the mortgaged balance or would they consider the cost of replacement?

If they did insure the assessed amount and the property was destroyed by the encroaching ocean would the home owner first pay off the mortgage company for the $200,000 they owe and pocket the rest when there is no chance of rebuilding?
for the most part, the insurance company covers the replacement value of the structure.

the lender requires you to have at least as much coverage as $$ you owe them, and they are the primary beneficiary (in laymen's terms)
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Old 03-14-2018, 08:26 PM
 
17 posts, read 42,087 times
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In this case your homeowners insurance would not cover this. If there is any coverage it would fall under your flood policy. It would be extremely hard and expensive to get flood insurance on this property. There is a guaranteed loss on this property of at least 200k.
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Old 03-14-2018, 08:47 PM
 
Location: Fort Lauderdale, Florida
8,144 posts, read 7,472,580 times
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Quote:
Originally Posted by LifeIsGood01 View Post
I can't see a bank allowing a mortgage for this type of home. It would most likely have to be a cash buyer and I can't see an insurance company insuring it unless the premiums are astronomical.

that's my non professional hypothesis.

Mortgage insurance would pay the lender if you stop paying and foreclose, I would think you can't rebuild on that site so how could anyone insure it for other than land value that will soon be in the sea?
We have a family home on a sizable piece of waterfront land in Murrells Inlet, SC and after Hurricane Hugo almost destroyed the home, my parents had it put on pilings and rebuilt.

Flood was so astronomical after Hurricane's Hugo and Andrew, my parents decided not to insure for flood. Funnily enough, since then, they've never needed it.
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