What can happen when hail damages your property?
Situation 1: A house is under contract to be sold but the closing has not occurred. A torrential hail storm hits and causes roof or other damage. What rights do the seller and buyer have?
This damage is called casualty damage. Casualty damage is damage that happens from a sudden, unexpected, or unusual event. It is important to understand that the damage must be sudden and unexpected. This means a hail storm qualifies while slow rusting does not. When a sudden weather situation occurs, for example, you might be confused as to who is responsible for the property damage. Luckily, most real estate contracts include a clause to address this situation.
The following is an example used by the Texas Real Estate Commission (TREC Form No. 20-12 One to Four Family Residential Contract (Resale)):
Casualty Loss: If any part of the Property is damaged or destroyed by fire or other casualty after the effective date of this contract, Seller shall restore the Property to its previous condition as soon as reasonably possible, but in any event by the Closing Date. If Seller fails to do so due to factors beyond Seller’s control, Buyer may (a) terminate this contract and the earnest money will be refunded to Buyer (b) extend the time for performance up to 15 days and the Closing Date will be extended as necessary or (c) accept the Property in its damaged condition with an assignment of insurance proceeds and receive credit from Seller at closing in the amount of the deductible under the insurance policy. Seller’s obligations under this paragraph are independent of any other obligations of Seller under this contract.
This clause is very typical in a real estate agreement and offers many options for the Buyer if the Seller doesn’t complete the repairs. The Buyer has three options if the Seller doesn’t repair the damages: (1) the Buyer can terminate the contract and get back any deposit that they have given the Seller; (2) if the Buyer still wants to purchase the house, the Buyer can allow 15 more days for the Seller to repair the damage; or (3) the Buyer can proceed with purchasing the house with the damages and receive the insurance money from the Seller’s insurance company including the amount of their deductible. So, if this situation happens, be sure to look at your contract to see what options are available to you. The primary thing to remember is that this clause only applies if the contract has been signed.
Situation 2: A torrential hail storm hits and causes roof or other damage to your house. There is a lien on the house because you still have a mortgage on the house with a bank or financial institution. In this case, the insurance company gives a check for the damage to both the Owner of the house and the financial institution that holds the lien. Now, the financial institution is holding all or part of the insurance proceeds until repairs to the home are completed. What rights do the Owner and financial institution have?
In this situation, the Texas Insurance Code explains what the bank or financial institution must do with these proceeds. The Code lists three steps:
(1) The bank needs to notify the Owner that they have the proceeds and are holding them until the repairs are done. Once the bank receives the proceeds, they must notify the Owner within 10 days.
(2) Once the Owner asks for the proceeds, within 10 days, the bank needs to either give the Owner the proceeds or give notice to the Owner. This notice will state why the bank is not going to give the Owner the proceeds and tell the Owner what requirements the Owner must complete to get the proceeds.
(3) If the bank fails to provide the notices, as mentioned in (1) and (2), or give the Owner the proceeds, then the bank will owe the Owner 10 percent interest a year in addition to the proceeds.
This means the bank has to follow these steps or they will be liable. They won’t be able to hold back your proceeds without telling you and must provide a way for you to receive the money. Be on the lookout for any notice from your bank to make sure you get your money as soon as possible.
THE TAKEAWAY: When a hail storm hits, there are many situations that arise from the damage. We never want to think of these situations happening, but it’s important to understand your rights if damage occurs. Hopefully this blog will help you if you find yourself facing a damaged home. Just know that in each situation, you have options and ways to get relief.
– The Business Team
Scott | Josh | Jeremy