What happens when there is a fire or destruction of property that is coming up for acution?


#1

We have been watching a property for some time and it keeps postponing—well guess what happened two days ago—there was a fire and the house will have to be gutted and redone completely. It looks like someone was probably squatting there or doing drugs and the place burned. Does the bank have to carry fire insurance on all these properties that are sitting around? I got a BIG wake up reminder that this is exactly why I MUST drive the property the day it comes up for auction!!! What was a 20K rehab bill, probably just went to 200K…!!! I know they are sold as is and buyer be AWARE, but wondering if the bank will reduce the price dramatically or if they will now do some kind of “fixing” with their insurance money–or maybe they are not insured??


#2

Banks don’t own the properties they are foreclosing on. They own a lien on the property which gives them legal right to foreclose if loan payment is delinquent.

The legal documents the homeowner signs when receiving original bank loan usually require homeowner to have a homeowner’s insurance policy at all times. However, the same legal documents also require the homeowner to make timely loan payments. If they aren’t making loan payments they are probably not making insurance payments.

With that said, I’m assuming large banks carry insurance for circumstances like you detailed above.


#3

Adm is right and keeping a policy naming the bank as additionally insured is a requirement of the loan. When the bank is informed that the policy has been canceled they will take out a policy on that property. Although the bank will be covered they may or may not elect to repair the property or sell it as is.

This is a great wake up call to anyone that is buying at the courthouse steps to make sure you have done a recent drive by. We have all heard the stories about this happening.


#4

Usually a homeowner pays for insurance for a whole year. If the policy has expired without renewal, then the lienholder would be notified. Depending on how organized the bank is, they will put insurance on the property and add the cost of the premium to the amount owed on the loan.
However, it will be very interesting to see how long it takes for the bank to realize that a secured piece of collateral has burnt down. I can imagine the frustration of the Fire Department (or whomever) trying to notify an absentee owner of an abandoned property who probably did not leave much of a forwarding address. It would take them awhile to get down to notifying a bank or insurance company because they would have to do some research to figure out who to notify.

Can you post the address of the property so the rest of us can watch what transpires on this? It would be fascinating to see what happens. Don’t understand why these banks leave abandoned properties hanging with postponements. They should foreclose as fast as possible to avoid the potential losses (or possible liability).


#5

GJ raised some interesting points. Big banks could easily be self-insured at some point. Why should they be paying premiums on properties they own. They probably need to keep insurance in place if the borrower is still in title. i don’t know what would happen if there is a fire at 11AM and the sale is at noon. What I have had happen is AFTER the sale the disgruntled owner torches the place as he moves out. 1. Guy took a sledge hammer to the structure and left a pile of rubble. While that might not have been covered, he went ahead and burned it. 2. Nite before Sheriff was to evict, spread charcoal light thru out the house and lit it. 3AM. Patrol car smelled something, located home in a few minutes called FD. Every window was cracked from the heat. FD said if another few minutes had passed when the windows would have blown out and the air rushed in - no more house. Had to replace some scorched sheet rock but no structure. 3. At about 5:30AM former owner came back to lite a fire. A neighbor who goes to work early noticed the smoke called FD and only a few thousand in damage was done. What seems more common these days is: Owner trashes place on the way out. That’s one reason why it makes sense for banks to offer cash4keys. I have always done that in the few cases where I buy an occupied property. You don’t have to worry about destruction.


#6

Property is now sitting there not boarded up, not taped off, wide open as fire dept bashed open all doors… Hubby and I walked through it, making sure floor would support us with every step. Kitchen and living room badly burned along with front porch. Many broken windows some roof damage. Really a horrible hazzard and no one seems to care. About 24 hours after fire there were a few guys in front of the house wearing ties…from the bank?? But nothing has been done to prevent access. 232-051-09 is the APN - Orange County CA 92706 I live in this area so I see it several times a day. If it goes to auction it better be a “fire sale”…LOL


#7

If it’s really a hazard, the City could board it up and recover the cost as an “abatement lien” against the property.


#8

Thanks for the update, we really appreciate it


#9

Title shows this property owned by Litton Mortgage since 5/2011. But there is no history of it ever going to auction (that I can see) so I am not sure how the bank came to own it wihout foreclosing through an auction.


#10

Deed in Lieu? Tax records often show how present owner came into title.


#11

Litton is a well-known bunch of crooks specializing in faking coming to help home owners thru Bankuptcy, only to take over the house thru Deed In Lieu, which is exactly the case of the house on Memory Ln.

See:
http://www.consumeraffairs.com/finance/litton_loan.html


#12

Well it’s now 10-2-11 and the house is still completely open and dangerous. The only sign of activity is the faded sign posted in the yard by the City of Santa Ana as a notice to clean up the place or get red tagged. I can’t believe that even the city hasn’t come to board it up before someone gets injured. The pool is half full of disgusting water and lots of trash and furniture etc. It is still showing as coming up for auction on the 11th. Gee do you think there will be a “fire sale” price?


#13

Thanks for the update


#14

Hi Randi, Chances are the City has imposed some serious fines and code violations. Most of the lenders have a strong property preservation team that is assigned to visit the properties and handle these types of issues. The current condition may or may not affect the opening bid.


#15

Michelle, if they have a strong property preservation team wouldn’t you think they would at least board up the house?


#16

Hi GJ, Absolutely, which is why I would assume that the City has imposed some serious fines on the property. I have attended the CA Code Enforcement Officers conference and this is a huge topic of conversation. This is where I first encountered the 5 major property preservation companies that are suppose to watch out for this type of activity. At the last conference they talked about the house that the bank took back that had a loan over 300k and they sold for 45k and had to pay 20k in code violations in order to close. The cities and counties are getting more aggressive and the banks are usually trying to do a better job of staying in front of this type of blight. This one sounds like it slipped through the cracks. One call to the mosquito abatement team about the pool and now you have a multi-agency attack.


#17

The house has FINALLY been boarded up–not sure if Bank or City did it…so if the city did it and the impose 'serious" fines—those become a lien right? BUT that lien would go away as it would be junior lien to the one foreclosing…so how do the fines ever get paid GJ?
Randi


#18

The fines associated with boarding up the property are tricky. It would depend on how your City or County jurisdiction handles the fine.

If the property falls under County jurisdiction and the County performed the service, the ‘service’ may become an abatement on a future property tax bill. For example, weed abatement and mosquito/vector abatement will show up as a fixed amount line item at the bottom of the property tax bill. It is too late for the abatement to be on this year’s property tax bill, so it would not appear on a property tax bill until next year in late 2012. If it is on a tax bill, then it is superior to everything.

If the County Bldg or Safety or Code Enforcement did it, then there will be a notice in the mail to the current owner as of the date of the action. The notice may actually warn that the City/County will bulldoze the house or something (depending on the jurisdiction that has authority). The notice will have a fee for the service. If the fee is not paid then the agency will file a lien on the property. This will take quite a while to get recorded from the date of service.

Once the lien is recorded, it is junior to other liens. However, the City/County will keep the lien recorded and try to go after the prior owner for the monetary amount. But, the City/County will go after the new owners to recitfy the situation. You will not be liable for the monetary fine, but you will be liable to fix the situation. It is best to call the City/County and find out what they require, BEFORE making a decision to purchase.