From this article, you will learn if rebuilding your home is a legal requirement and what options you have if a fire damages or destroys it.
We also discuss what to expect from your insurer and lender.
Let’s start with the definitive answer.
You Don’t Have to Rebuild the Same House After a Fire
Rebuilding after a house fire is a common choice, but there’s no mandate to do it. Ultimately, the decision is yours.
That’s because you have property rights. As the owner of private property, you have the freedom to decide what to do with it.
You’ll have to comply with zoning laws, safety codes, and other local rules and restrictions, of course.
Your insurance company and mortgage lender may influence your choice, but they can’t legally make you rebuild.
As an alternative, you can sell your house as is. To do so quickly and easily, request a cash offer from companies that buy homes with fire-related damage — no repairs needed.
That can be especially helpful if you want to move on without construction or insurance claim headaches.
But before deciding, you should understand how an insurance settlement and outstanding mortgage might impact your next steps. We’ll cover that next.
What About Insurance?
Whether you forgo rebuilding because of finances, lifestyle changes, or it just takes too long to rebuild a house after a fire, that choice impacts your insurance payout.
The other crucial factor is the type of dwelling coverage you have.
Standard homeowners insurance generally offers two coverage types: Actual Cost Value (ACV) and Replacement Cost Value (RCV).
If your policy has ACV coverage, your settlement is what your property was worth at the time of the fire, not what it costs to rebuild it.
In short, your insurer will determine the cost to replace your home and then subtract for things like age and condition.
RCV policies cover the full cost to repair a fire-damaged house — or to reconstruct it from the ground up — paying to restore it to its previous condition with similar materials and quality.
There’s a caveat: You usually only get the full value if you rebuild. If you choose not to, your insurer will likely limit your payout to the ACV amount.
Why is that? RCV coverage is designed to get you back to where you were by reconstructing or repairing your home.
If you don’t do either, the coverage normally adjusts to reflect the actual value of what you lost, which means depreciation is factored in.
It’s worth noting that some insurers offer endorsements or add-ons that allow you to receive more than the ACV amount, even if you choose to walk away.
Just keep in mind that extras like this can cost more, and the payout is often capped at less than the cost of restoring your house.
What About the Mortgage Lender?
If your home is destroyed or severely damaged in a fire, and rebuilding isn’t your chosen path, your mortgage lender will need specific things from you.
Remember, they still have a stake in the property and will be looking out for their interests.
Even if the house is gone, your obligations under the mortgage agreement aren’t. Here’s what most lenders typically expect in this situation:
- You’ll pay off the loan
In the context of what happens after a house fire, a primary concern for the lender is repayment. You’re still responsible for the mortgage balance even if the house is a total loss.
- They get a stake in the payout
Lenders usually require that the insurance check be jointly made out to you and them. That gives them a degree of control to ensure your loan gets paid.
- You’ll protect what’s left
You’ll need to secure the property — whether that’s boarding up windows or putting up a fence — to prevent further damage or safety risks. Most lenders also want you to keep insurance coverage until you’ve fully paid the loan.
- You’ll address any shortfall
If the insurance money and sales proceeds don’t cover what you owe, you’ll have to figure out how to make up the difference. Not doing so can put you at risk for foreclosure, even if all that’s left is land.
- They’ll be fully informed
Expect your lender to require updates about the fire incident, your insurance claim, and what you intend to do with the property going forward.
The takeaway: When you’re not rebuilding a house after a fire, the financial side of things can get complicated fast. So, be proactive and cooperative, and keep open lines of communication.
How to Sell a Burned House?
The challenges that come with a fire-damaged house can make it feel more like a burden than an asset.
If you’re not up for repairing or rebuilding your home or don’t have the money it takes, selling it for cash is a practical and effective way to deal with this challenge.
Fortunately, there are companies that buy distressed properties directly from homeowners. They are used to dealing with homes in any condition and aren’t put off by circumstances like fire damage.
When you choose this route, you can expect several distinct advantages:
- The sale isn’t contingent on loan approval. You get a cash offer. So, there’s no risk of the lender denying a loan because of concerns about fire damage.
- Investors that buy these types of properties are able to close quickly, often in a matter of days.
- A key benefit is the ability to sell a fire-damaged house as is. Cash buyers are well accustomed to handling repairs themselves. That means you won’t have to.
- You avoid the time-consuming inspection and appraisal requirements of traditional sales.
- Cash buyers typically cover closing costs for you.
- You’ll keep more proceeds than if you hired a real estate agent to sell your house as is: there’s no agent commission to pay in a sale to an investor.
To find the best deal, get a cash offer from several reputable local companies. Our website connects you with vetted buyers so you can easily compare and choose the best one.
If you’re looking into your options, our article on how to sell a fire-damaged house provides a comprehensive overview of other approaches to help you make an informed decision.
