Who Pays for Property Damage to a House in Foreclosure Without Insurance Coverage?

Full question:

I have a spec house in clear lake ca.,from feb to june 2008 there was a water leak in the attic that ran continuously doing 70,000 in damages. After a year the insurance company refused to pay. The house is now in foreclosure, can the lender demand I pay for repairs?

• Category: Real Property
• Subcategory: Foreclosure
• Date: 04/07/2025
• State: California

Answer:

A mortgagee in possession, or one that is receiving rents under an assignment, has a duty to make repairs to the premises. Who has a duty to repair damaged property; and how to fund repairs when repair expenses exceeded insurance benefits is a matter determined by the terms of the document under contract law principles. The repair duties and corresponding duties to fund repairs usually are delineated in the mortgage document.

For example, the following is an example of mortgage clauses dealing with property damage:

If the Property is damaged, such Miscellaneous Proceeds will be applied to restoration or repair of the Property, if (a) the restoration or repair is economically feasible, and (b) Lender’s security given in this Security Instrument is not lessened. During such repair and restoration period, Lender will have the right to hold such Miscellaneous Proceeds until Lender has had an opportunity to inspect the Property to verify that the work has been completed to Lender’s satisfaction. However, the inspection will be undertaken promptly. Lender may pay for the repairs and restoration in a single disbursement or in a series of progress payments as the work is completed. Unless Lender and I agree otherwise in writing or unless Applicable Law requires interest to be paid on such Miscellaneous Proceeds, Lender will not be required to pay Borrower any interest or earnings on the Miscellaneous Proceeds. If the restoration or repair is not economically feasible or Lender’s security given in this Security Instrument would be lessened, the Miscellaneous Proceeds will be applied to the Sums Secured, whether or not then due. The excess, if any, will be paid to me. Such Miscellaneous Proceeds will be applied in the order provided for in Section 2.

In the event of a total taking, destruction, or loss in value of the Property, the Miscellaneous Proceeds will be applied to the Sums Secured, whether or not then due. The excess, if any, will be paid to me.

In the event of a partial taking, destruction, or loss in value of the Property in which the fair market value of the Property immediately before the partial taking, destruction, or loss in value is equal to or greater than the amount of the Sums Secured immediately before the partial taking, destruction, or loss in value, the Sums Secured will be reduced by the amount of the Miscellaneous Proceeds multiplied by the following fraction: (a) the total amount of the Sums Secured immediately before the partial taking, destruction, or loss in value divided by (b) the fair market value of the Property immediately before the partial taking, destruction, or loss in value. Any balance shall be paid to me.

In the event of a partial taking, destruction, or loss in value of the Property in which the fair market value of the Property immediately before the partial taking, destruction, or loss in value is less than the amount of the Sums Secured immediately before the partial taking, destruction, or loss in value, the Miscellaneous Proceeds will be applied to the Sums Secured whether or not the sums are then due.

I suggt you read the terms of your loan documents carefully to determine the rights and obligations between yourself and the lender regarding property damage or consult a local attorney who can review all the facts and documents involved. Whether the lender has undertaken repairs may also be a factor, as some foreclosure properties are sold as is,without repairs.