How Long Should I Carry Homeowner’s Insurance After Foreclosure Starts?

Facing foreclosure can be a frightening prospect. Once your foreclosure has become a matter of public record, you'll be forced to find a new place to live. This will require you to face the daunting task of moving your spouse, children and belongings across town or to a completely different part of the country. With the humiliation of your foreclosure filing still fresh in your memory, this won't be an easy task. You'll also have to face the unpleasant prospect of a reduced credit score. It's likely that your post-foreclosure credit profile will prevent you from obtaining a prime-rate mortgage loan for several years.

You'll also have to deal with a number of stress factors during the months leading up to your foreclosure. For starters, it's likely that your homeowner's insurance coverage will lapse once your mortgage falls into delinquency. Until your lender has officially assumed the title to your house, your home and its contents won't be protected from theft or damage. Since it's likely that you'll be able to remain in the house for several months after your lender's announcement of its intention to foreclose, you'll need to make alternative coverage arrangements.

Unfortunately, you could face serious consequences for failing to insure your home during the foreclosure process. Until your mortgage lender officially seizes the title to the property, you remain its legal owner. However, your mortgage lender also maintains a lien on the property. Once the foreclosure process has completed, it will be entitled to sell the property and use the proceeds to pay off the remaining balance on your delinquent loan. If certain uncovered structural damages prevent your lender from recovering the property's fair market value, it might have legal recourse. In fact, your lender is likely to file a parallel lawsuit to recover the costs associated with any damages to your uninsured home. It's important to note that this suit won't delay the pending foreclosure.

As such, you must carry homeowner's insurance until your lender assumes the title to your home. However, you may not have to reinstate your previous policy. In fact, you might wish to obtain a cheaper "hazard" insurance policy that protects the structure of your home against certain pre-defined hazards. These might include fire damage, wind damage and theft. You might also wish to take out a separate "contents" policy that covers your personal possessions. You can retain this coverage after the foreclosure.

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