Do I have to pay my mortgage if my home was destroyed?

If your home was damaged in a recent disaster such as the California wildfires or flooding in North Caroline, keeping up with the mortgage is still important. Here are some things to know.

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Some may wonder why a homeowner should worry about paying their mortgage if their home was destroyed, such as in the California wildfires in January, the flooding from Hurricane Helene in September 2024 or any unfortunate incident.

Repayment is expected. And smart, for multiple reasons:

  1. You own the land, which may be more valuable than your house was. If the bank forecloses, you’ll lose the property.
  2. You may plan to rebuild with help from insurance or government grants. 
  3. You don’t want your credit rating destroyed too. 

So what do you do?

In the case of the California wildfires, major national banks and state banks and credit unions have already committed to working with customers whose homes were damaged or destroyed. In some cases, people’s incomes may be suffering too if they owned a business that was damaged,  its customer base was impacted or the company where they worked was affected. The major banks offering leniency are the nation’s five largest: Bank of America, Citi, JPMorgan Chase, U.S. Bank and Wells Fargo. 

For starters, the banks have pledged:

  • 90-day grace periods for payments, late fees and reporting late payments to the credit bureaus. (Interest would continue to accrue though.)
  • Moratoriums of at least 60 days for evictions and new foreclosures on affected property owners. 
  • To allow borrowers to get the process started without requiring them to submit documents or forms for now.

Freddie Mac and Fannie Mae, the giant government-sponsored enterprises which buy mortgages from banks, have also promised help for homeowners. Freddie Mac’s forbearance program can allow customers to pause payments for up to 12 months.

Grace on big bills is common following natural disasters or life-disrupting events such as the COVID pandemic. But it doesn’t have to be a huge occurrence that was in the news. Individual tragedies happen.

It starts with communication. After you’ve filed an insurance claim and applied for government assistance, the next step is contacting your mortgage lender or servicer and, if you can’t afford your payments, making arrangements for what’s next, according to the Consumer Financial Protection Bureau. That could include modifying your loan to reduce your monthly payment over the long term. 

You can also contact the three major credit bureaus, Equifax, Transunion and Experian, to put a statement on your file about your financial distress if negative information such as a late payment hits your file. You may want to contact a lawyer.

For homeowners and renters, the Small Business Administration offers low-interest loans to replace or repair homes or replace belongings such as furniture, appliances, vehicles and clothes. 

The CFPB has an additional guide about recovering from a natural disaster.

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Authors

Teresa Murray

Consumer Watchdog, U.S. PIRG Education Fund

Teresa directs the Consumer Watchdog office, which looks out for consumers’ health, safety and financial security. Previously, she worked as a journalist covering consumer issues and personal finance for two decades for Ohio’s largest daily newspaper. She received dozens of state and national journalism awards, including Best Columnist in Ohio, a National Headliner Award for coverage of the 2008-09 financial crisis, and a journalism public service award for exposing improper billing practices by Verizon that affected 15 million customers nationwide. Teresa and her husband live in Greater Cleveland and have two sons. She enjoys biking, house projects and music, and serves on her church missions team and stewardship board.