Home policy coverage after foreclosure Kenneth Hill Hill asked 2 months ago
Home policy coverage after foreclosure

Can an insurance company refuse to pay out on home insurance policy claims after foreclosure on home, even if policy is still paid and clients still reside in residence?

1 Answers
Ron Reitz Ron Reitz Expert answered 3 weeks ago

Hi Kenneth.

The Deed of Trust is the controlling document in this scenario. It clarifies the disposition of the insurance proceeds once a foreclosure occurs. If the loss occurs prior to the foreclosure sale, then the borrower still had an insurable interest in the loss. The Deed of Trust specifies the application of the claim funds. But essentially, the lender will hold them in escrow and apply them to reduce the loan balance, if the proceeds are paid out prior to the foreclosure.

If the loss occurs after the foreclosure sale, then the borrower no longer had an insurable interest and is not entitled to any of the claims proceeds. Those proceeds will go to the lender (who is now the owner of the property).

So the answer depends on whether the event that caused you to file a claim occurred before or after the foreclosure sale.

Since you are still residing in the foreclosed property, if you want to be insured, you will need to obtain a rental policy covering your personal property and liability only. Technically you no longer have an “insurable interest” so you’d need a renters policy.

We understand this answer is different than what you had hoped.

Best to you,

Ron Reitz