How does selling your home affect your insurance claim?
In Florida, if you sell your home while the claim is pending, what happens to the insurance claim?
You may have suffered a loss while your home was already listed for sale, or you may have decided while battling your insurance company for a fair payment that you’d rather sell the home as-is. Or maybe you haven’t been paid enough to complete the repairs and can’t stand to live in a damaged home while you’re litigating your homeowners insurance claim.
What happens to your insurance claim if you sell your home before the claim has been fully paid? VIP Adjusting’s public adjusters have helped many homeowners in Fort Pierce, Port St. Lucie, Stuart, and other parts of the Treasure Coast through just this type of situation.
Your insurance policy requires you be paid “at least the actual cash value” for your claim
Your homeowners insurance policy is a contract between you and the insurance company. The policy contains a number of terms and conditions and in the section usually titled “Loss Payment” it states that the insurance company will “pay you at least the actual cash value.”
We recently discussed the comparison between actual cash value payments and replacement cash value payments, but what this means is that an insurance company is required to make payment of at least the amount of repairs, minus any depreciation up front, whether or not you’ve done the repairs.
You typically are entitled to recover the depreciation, or be paid the full replacement cost value when you do complete the repairs, or sign a contract to start the repairs.
Sometimes, insurance companies are willing to pay the replacement cost value up front, usually for smaller claims, say for damage to a bathroom from a leaking pipe. Other times, the insurance company will pay the replacement cost value in exchange for a release, or as part of a settlement in litigation. In the latter instance, you may be giving up the right to recover other benefits under your policy, so the insurance company would be willing to pay the recoverable depreciation before you’ve started the repairs.
The ins and outs of these scenarios are one of many reasons you should have a public adjuster from VIP Adjusting looking out for your interests as you navigate your claim.
Selling your home waives the claim for recoverable depreciation
The rule of thumb for an insurance claim is that the claim is always evaluated as if it were frozen in time on the date of loss. What that means is that the damages, unless they get worse or are repairs are completed, are evaluated as they existed at the time of the loss and damage.
The property owner had an insurable interest at the time the property was damaged, so even though selling the property extinguishes the seller’s insurance interest moving forward, there was still insurable interest at the time the claim became ripe under the insurance contract.
What selling the property does achieve, though, is it guarantees that the seller/insured will not complete the repairs. Since the repairs can never be completed by the seller/insured because of the sale, that claim to recover depreciation would be extinguished
Who collects the insurance claim proceeds if the damaged home is sold?
Typically, the owner at the time of loss, the original insured would receive the insurance proceeds, on an actual cash value (depreciated) basis, but, real estate sales are contracts as well, and the insurance claim can become a point of negotiation between the parties.
Post-loss insurance claims are assignable in Florida, and can be included as part of the sale through a document known as an “Assignment of Benefits.” A higher price may be negotiated for the sale in exchange for the rights to the remainder of an insurance claim.
Your public adjuster or attorney can walk you and your realtor through this prior to the sale of the home, and that input may be invaluable since the value of the claim may still be unknown, or fall within a wide range.
Depreciation tactics by the insurance company
If you opt to keep the actual cash value portion of the claim while the property was sold, you’re partly fighting about the scope and value of the repairs, which is a common fight, but you’re also fighting about the appropriate depreciation.
VIP Adjusting’s public adjusters have years of experience in the insurance industry, law, and construction, and know what building materials can and should be depreciated. The big ticket items that have a definite useful life applicable to depreciation are roofing systems and cast iron plumbing. Still depreciable, but subject to more discussion are laminate floors, cabinetry, wood floors, vanities, and sometimes paint. These items have a useful life but are in a much wider range of acceptability. Questionable building materials when it comes to depreciation as part of your homeowners insurance claim are things like tile floors and drywall or plaster. Things that are not depreciable are labor for the repairs or prep work or cleaning, supplies used in construction like gloves, tape, or masks, or rental equipment like dumpsters for debris removal.
Sale of the dwelling eliminates a claim for Additional Living Expenses or Loss of Use
If you decide to sell your property while the insurance claim is still pending, you no longer have an insurable interest in the dwelling moving forward. That means, you no longer possess a property that is uninhabitable due to damage. Naturally, that means that even though repairs are still pending on the damaged property, you have put yourself in a situation where you can buy another property to be your primary residence, or in the case of a rental property, you have recouped your investment and can buy another rental property.
Because of this, it is highly likely that you have extinguished a claim for Additional Living Expenses or Loss of Use under your homeowners insurance policy and as part of your claim. For all practical purposes, though, most people sell their home as the claim tends to drag on which would likely stem uninsured losses or losses in excess of the policy’s limits.
If there is a potential for the sale of your home while your claim is still pending, it’s imperative you have someone in your corner to stand up to the insurance company’s nickel and dime tactics. If you find yourself in this situation, contact VIP Adjusting for a free claim evaluation today.
You might also be interested in:
Claims where a homeowner is likely to sell the home with the claim still pending:
In the aftermath of a hurricane and with extensive wind damage
More about claims for Additional Living Expenses and Loss of Use