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Question Time

November 28, 2013

It’s not what you think.

So I was thinking to myself, on the tram on the way home from work the other day, about these people who go through the awful experience of losing everything they own in a bushfire.

What happens to the people with no insurance?

Consider the following hypothetical…

Say a family lose their own and all their possessions in a bushfire.  Let’s say their house is worth $350,000 and the land is worth another $150,000 (so a combined value of $500,00).

Let’s say they have a mortgage of $400,000.

What happens after the house is burned down?

Would the bank attempt to recoup some of the cost by selling the land?

Are the owners still obliged to pay the bank the outstanding mortgage of $350,000, or do they come to some other arrangement?

 

 

 

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51 Comments leave one →
  1. egg permalink
    November 28, 2013 6:50 pm

    Around half of south-east Queenslanders have no flood insurance.

    http://theconversation.com/why-are-so-many-queenslanders-still-without-flood-insurance-11829

    You takes your chances.

  2. November 28, 2013 7:14 pm

    Reb
    no bank would write a mortgage unless the property was insured so that blows the whole premise of your post 😉

  3. November 28, 2013 7:18 pm

    Egg
    if it were to flood here Brisbane would be under about 400m of water so why should I buy flood insurance?

  4. November 28, 2013 7:23 pm

    Inane,

    Some people get insurance and then they let lit lapse.

    MORON.

  5. November 28, 2013 7:30 pm

    Reb
    If you let your insurance lapse your bank would soon be sending you very nasty letters indeed demanding that you pay your insurance immediately
    Somehow I don’t think that you have ever had a mortgage,

  6. paul permalink
    November 28, 2013 7:30 pm

    The other thing is, how do you get insurance on a property you do not own yet, you have to own the property to get home and contents insurance if I am correct.

  7. paul permalink
    November 28, 2013 7:32 pm

    I have know people who have let there insurance lapse, and they are paying a mortgage, they have not received a nasty letter from the bank.

  8. November 28, 2013 7:47 pm

    “If you let your insurance lapse your bank would soon be sending you very nasty letters indeed demanding that you pay your insurance immediately”

    That’s bullshit Inane, as there’s no way the bank would know that your insurance has lapsed…

    Why do I get the feeling that you’ve never owned real estate… 🙄

  9. November 28, 2013 7:49 pm

    Paul, there are plenty of people with mortgages who have no current insurance… which simply proves how completely out of touch with reality Inane really is.

  10. paul permalink
    November 28, 2013 7:50 pm

    Here is a guide for First Home buyers, nowhere in that article is anything about home and contents insurance, now if was important you would think it would be there. Inane is talking out his ass again we think.

    http://www.mortgage.com.au/Buying/Buying-first-home/First-Home-Buyer

  11. egg permalink
    November 28, 2013 8:26 pm

    ‘24.5 per cent of the population of Victoria do not have home or contents insurance’

    Read more: http://www.theage.com.au/national/push-on-for-forced-fire-insurance-20090228-8l16.html#ixzz2lvlFajBD

  12. November 28, 2013 9:27 pm

    ‘ ‘ ‘ ‘Are the owners still obliged to pay the bank the outstanding mortgage of $350,000,’ ‘ ‘ ‘
    Yes, they are legally `self-insured` and still owe the bank.

  13. paul permalink
    November 29, 2013 1:02 am

    If you let your insurance lapse your bank would soon be sending you very nasty letters indeed demanding that you pay your insurance immediately

    I get the impression that Inane has let his insurance lapse more than once because It looks like he has insurance through a bank, that would be the only way a bank would know.

  14. November 29, 2013 6:47 am

    Paul & Reb
    even after we paid off our loan we have maintained our insurance.so you are wrong to suggest that I “have never owned real estate” In fact I own two houses and owe nothing on them. It sounds like you two are the ones with no experience of owning real estate.
    A couple of points about insurance
    When you sign a contract on a property you are obliged to take out insurance on that property that covers it from the moment you signed the contract and maintaining that insurance is a condition of your mortgage contract. You would be in breach of your agreement if you just let it lapse.

    Finally the bank does not care about you insuring the contents of the house, that is not what secures your loan all that they want you to insure is the real estate so that they have an asset to sell should you go into default. its that simple so as I suggested in the earlier comment the premise of this post is in error.
    .

  15. November 29, 2013 7:14 am

    “maintaining that insurance is a condition of your mortgage contract”

    That’s rubbish Hall.

  16. November 29, 2013 7:41 am

    No Reb that is the truth, ring any mortgage provider or bank and check or in the unlikely event of you having a mortgage yourself read the contract that you will have signed. Funnily enough when you take out a car loan they likewise insist that the asset be covered by insurance for precisely the same reason so that they will be able to sell the asset in the event of a default.
    So I suggest that you put aside your visceral hatred of yours truly and do the necessary research to avoid further embarrassment, its as easy as a phone call mate.

  17. Walrus permalink
    November 29, 2013 9:03 am

    Ahhhhhhhhhh…………………….Insurance………………………………wandering into my area a bit there.

    The practicalities are

    1) House Insurance
    Yes in order to get a mortgage you need a certificate of currency stating the Bank is an interested Party for the period of the insurance. But very very few banks actually follow up on renewal. They cant get the info for themselves for obvious privacy reasons. You have to send it to them. So unless you are doing that they have no idea. And if they find out its not insured (unlikely) they’ll just insist that you do it…………………until next time.

    Recently I devalued the insured value of 2 of our properties which I considered way overvalued by the insurance company hence overpricing the premium. They dont go about informing my bank that I did so.

    And of course when its an apartment its covered by the strata insurance in NSW

    2) Commercial Loans
    Yes in order to get a mortgage for a corporate on a major commercial building (say in excess of $1M) you need a certificate of currency stating the Bank is an interested Party for the period of the insurance. All Banks actually follow up on renewal as there is usually in place a system of annual review an a new certificate of currency is the norm

  18. Walrus permalink
    November 29, 2013 9:05 am

    Did a comment of mine just go to the spaminator ?

  19. November 29, 2013 9:10 am

    Proof that you have insurance is only required at the time of the purchase.

    If your insurance subsequently lapses say after 12 months, the mortgage provider would not know (unless the mortgage provider is also the insurance provider)…

  20. Walrus permalink
    November 29, 2013 9:21 am

    “If your insurance subsequently lapses say after 12 months, the mortgage provider would not know (unless the mortgage provider is also the insurance provider)…”

    That’s correct. They cant get the info themselves due to privacy concerns.

    And even if they did ask all of a sudden they are not going to tear up your loan contract throw you out of the house and conduct a fire sale. They’ll just send you a stern letter

    And in the case of apartments in NSW insurance is carried by the strata scheme.

    In my experience banks only follow up on insurance for larger investment loans which are subjected to an annual review process and a LVR examination on longer term commercial mortgages

  21. November 29, 2013 9:31 am

    Even if what you say is correct Reb (and It isn’t) you would still be in breach of your contract with your lender were you to let the insurance lapse. No sensible person would risk it to be frank. They may well decide not to insure their contents which would easily halve your insurance bill but to have the property itself uninsured would be utter stupidity.

    There certainly are a lot of people who are uninsured when it comes to their household contents and that just means that they are personally carrying the risk that they may lose some or all of their chattels to some sort of calamity. If you do your sums though it may well be that carrying that risk yourself is fine if you don’t have expensive stuff cluttering your life so living simply can save you from both the expense of contents insurance and the enslavement of your possessions. .

  22. Wally in Palm Beach permalink
    November 29, 2013 9:36 am

    Why are my previous comments not appearing ?

  23. Wally in Palm Beach permalink
    November 29, 2013 9:36 am

    Oh……………..That one did !

  24. Wally in Palm Beach permalink
    November 29, 2013 9:40 am

    “Even if what you say is correct Reb (and It isn’t)………………………”

    Ummmmmmmmmmmmm……………………Yes it is

    I downgraded 2 of my own grossly overvalued properties a year ago (overvalued by the insurance company). Not a word from the Bank. Due to privacy considerations they have no idea whether you are still carrying insurance. That’s why they ask you to get the certificate of currency with them as “interested parties” on taking out the mortgage.

    Commercial property loans are reviewed annually and always require new curency certificates

  25. paul permalink
    November 29, 2013 9:49 am

    Inane, in that link for first home buyers, there is nothing mentioned about getting home insurance, the only insurance mentioned is this “Lenders Mortgage Insurance”. Now if home insurance is important would it not be mentioned there.

  26. Wally in Palm Beach permalink
    November 29, 2013 9:51 am

    And by the way Australian bank loans are recourse loans so the bank can and will come after the borrowers for any shortfall of repayment of principle they suffer.

  27. November 29, 2013 10:01 am

    Apologies to Ricky, Sparta and Walrus – some of your comments were in the spaminator thye have now been released…

  28. November 29, 2013 10:02 am

    “And by the way Australian bank loans are recourse loans so the bank can and will come after the borrowers for any shortfall of repayment of principle they suffer.”

    Thanks for answering the question Wally.

    Does this mean that they could make come after your future earnings too? Or do they just make you bankrupt (which presumable would mean they can’t come after your future earnings)…

  29. Wally in Palm Beach permalink
    November 29, 2013 10:13 am

    Same rules as in bankruptcy law I believe. Banks are not a special species.

    I dont deal with people even close to bankruptcy (LOL) so I’m no expert in insolvency law.

  30. Wally in Palm Beach permalink
    November 29, 2013 10:15 am

    “Apologies to Ricky, Sparta and Walrus – some of your comments were in the spaminator thye have now been released…”

    Just leave Ricky’s there………………………….:)

  31. November 29, 2013 10:18 am

    “Just leave Ricky’s there”

    😆

  32. November 29, 2013 10:43 am

    Ricky
    Do you have any idea how dull you are being?
    paul
    Unlike you I am talking from first hand experience of buying a home and paying it off rather than relying on a desperate Google search for some superficial information. give it up man you are looking very silly here.
    Reb
    Its looks to me like Wally is by and large backing up what I have been saying here so maybe you should formally concede the point.

  33. paul permalink
    November 29, 2013 10:57 am

    So Inane, are you saying the mortgage site is wrong, bank sites as well, I have noticed that you have not offered anything to back your argument, other than your word.

  34. November 29, 2013 10:59 am

    “Its looks to me like Wally is by and large backing up what I have been saying here so maybe you should formally concede the point.”

    ROFLMAO

    Perhaps you need to re-read what he actually said…

    What part of – “I downgraded 2 of my own grossly overvalued properties a year ago (overvalued by the insurance company). Not a word from the Bank. Due to privacy considerations they have no idea whether you are still carrying insurance” – don’t you understand….??

    Perhaps you should just admit that you were wrong?

    I have similarly downgraded building insurance cover on properties I own and the banks don’t have a clue…

    Which is why I asked the question about property loss and obligations to meet mortgage repayments in the first place…. 🙄

  35. TB Queensland permalink
    November 29, 2013 11:10 am

    if it were to flood here Brisbane would be under about 400m of water so why should I buy flood insurance?

    Because it is compulsory … I live on a hill (I can watch the ships sail past and I’m 6km from the coast) … I just had this discussion with my provider (had it last yaer too) flood cover is part of all home insurance contracts ….

    There is an Federal Insurance Contracts Act …

  36. paul permalink
    November 29, 2013 11:21 am

    I have just spoken to three people, A real estate agent, A lawyer and a bank manager, homes insurance is optional, as you can get insurance from any insurance provider, not necessarily a bank. The bank does no need to know who you get home insurance through.

    The only insurance the bank is interested in is “Lenders Mortgage Insurance”,

    Lenders Mortgage Insurance (insurance required by the lender if you borrow more than 80% of the property value). Lenders Mortgages Insurance protects lenders against a loss should a borrower be unable to meet their mortgage repayments
    Mortgage Protection Insurance is insurance that covers your mortgage in the event of death, sickness, unemployment or disability

  37. Walrus in Palm Beach permalink
    November 29, 2013 11:41 am

    “………homes insurance is optional, as you can get insurance from any insurance provider, not necessarily a bank………”

    I dont know what Bank you are dealing with but before a loan is settled at least 3 of the Gang of 4 (never dealt with ANZ) have required building insurance stating on the insurance contract that they are “interested parties”. Otherwise no loan. And I’m talking about non bank insurance i.e. Allianz, NRMA etc..

    Later on they might not care so much because the land value alone especially in Sydney becomes larger than the remaining borrowings

  38. Walrus in Palm Beach permalink
    November 29, 2013 11:53 am

    And a word from the experts

    http://www.homeloanexperts.com.au/home-loan-documents/certificate-of-currency/

    And by the way. Very few banks would charge you a default interest rate these days if they found uninsured (unlikely) as there are too many good deals around so they dont want to encourage you to tell them to shove their loan where the sun dont shine

  39. November 29, 2013 12:40 pm

    paul

    So Inane, are you saying the mortgage site is wrong, bank sites as well, I have noticed that you have not offered anything to back your argument, other than your word.

    Yawn! mate why should I wast my precious time dancing to your tune?

    reb

    “Its looks to me like Wally is by and large backing up what I have been saying here so maybe you should formally concede the point.”

    ROFLMAO

    Perhaps you need to re-read what he actually said…

    What part of – “I downgraded 2 of my own grossly overvalued properties a year ago (overvalued by the insurance company). Not a word from the Bank. Due to privacy considerations they have no idea whether you are still carrying insurance” – don’t you understand….??

    Perhaps you should just admit that you were wrong?

    I have similarly downgraded building insurance cover on properties I own and the banks don’t have a clue…

    Which is why I asked the question about property loss and obligations to meet mortgage repayments in the first place…. 🙄

    Changing the amount for which you insure individual properties for is quite different to having no insurance at all as you were talking about in the earlier comment.

    TB

    if it were to flood here Brisbane would be under about 400m of water so why should I buy flood insurance?

    Because it is compulsory … I live on a hill (I can watch the ships sail past and I’m 6km from the coast) … I just had this discussion with my provider (had it last year too) flood cover is part of all home insurance contracts ….
    There is an Federal Insurance Contracts Act …

    Yes I know that and like you I resent having to pay for cover that I will never have to call upon, as it happens I was trying to be witty as well as making the point that the earlier comment about how many people not having flood insurance is wrong.

    paul

    I have just spoken to three people, A real estate agent, A lawyer and a bank manager, homes insurance is optional, as you can get insurance from any insurance provider, not necessarily a bank. The bank does no need to know who you get home insurance through.

    The only insurance the bank is interested in is “Lenders Mortgage Insurance”,

    Lenders Mortgage Insurance (insurance required by the lender if you borrow more than 80% of the property value). Lenders Mortgages Insurance protects lenders against a loss should a borrower be unable to meet their mortgage repayments
    Mortgage Protection Insurance is insurance that covers your mortgage in the event of death, sickness, unemployment ordisability

    Oh paul you really don’t have a clue do you 🙄

    Walrus in Palm Beach


    I dont know what Bank you are dealing with but before a loan is settled at least 3 of the Gang of 4 (never dealt with ANZ) have required building insurance stating on the insurance contract that they are “interested parties”. Otherwise no loan. And I’m talking about non bank insurance i.e. Allianz, NRMA etc..

    My loan was through the ANZ so you can add them to the list above.

    Later on they might not care so much because the land value alone especially in Sydney becomes larger than the remaining borrowings

    Its probably the case that most people are quite compliant about insuring their house, that said given the ease of data matching these days I doubt thtat their seeming indifference will be enduring.

    And by the way. Very few banks would charge you a default interest rate these days if they found uninsured (unlikely) as there are too many good deals around so they dont want to encourage you to tell them to shove their loan where the sun dont shine

    Given the change over costs to switch lender are not insignificant I would not be so sure of that.

  40. Walrus permalink
    November 29, 2013 12:50 pm

    “………..that said given the ease of data matching these days I doubt thtat their seeming indifference will be enduring. ”

    Banks and Insurance companies do not data match. It’s actually illegal for them to share information without the WRITTEN consent of the customer under the Privacy Act

  41. Walrus permalink
    November 29, 2013 12:55 pm

    “Given the change over costs to switch lender are not insignificant I would not be so sure of that.”

    I refinanced one property 2 years ago. The existing mortgage was 5 years old. I dont regard a $300 valuation fee as too significant. The new lender covered the mortgage stamp duty (built into the rate obviously but still cheaper).

    The newer loans do have very low exit fees and in the case of older loans the LVR would most like be over 100% of land value anyway. So the bank is covered without insurance.

  42. TB Queensland permalink
    November 29, 2013 12:58 pm

    Well covered, Wally … 😉

  43. Walrus permalink
    November 29, 2013 1:23 pm

    Thanks TB

    I actually recommend to most people to look critically at their insurance policies in regard to the building value.

    The insurance companies are way overinsuring on the buildings it would seem.

    To check it just ask a real estate agent to come over and do a valuation. Then deduct 10% from the thieving bastard’s bullshit valuation and you’ll get close to the actual market.

    Then look for a complete dump (like a knockdown) on a similar block in your area. It will sell for pretty close to land value. Then add your building insurance to that figure and compare it to the RE valuation.

    If you are not sure look at some online project homes and their cost to build. In my case I’m not going to replace a Californian bungalow or a Federation house with same if they got burnt down. That’s the practicality of it all.

    PS Don’t forget demolition costs in any of this

  44. November 29, 2013 1:31 pm

    “Changing the amount for which you insure individual properties for is quite different to having no insurance at all as you were talking about in the earlier comment.”

    I was talking about having no insurance at the time the property is burned to the ground.

    You argued that this was not possible.

    The reality is that it is possible, as Walrus has explained in detail..

  45. November 29, 2013 6:19 pm

    Isn’t it funny how Inane just pisses off when he’s proven to be factually wrong.

    🙄

  46. Walrus permalink
    November 29, 2013 6:26 pm

    Must be coincidence………..it is the weekend……………………..LOL

    Anyway time to open the bar fridge……..

    ………..Cheers and have a good weekend gang

  47. November 29, 2013 6:27 pm

    Cheers Walrus…! (I’ve already cracked open a red)

    *wine that is… 😉

  48. November 30, 2013 5:46 am

    Reb
    my argument was never that it was not possible, anything is possible, rather I thought your scenario to be extremely unlikely.
    That said I have been clearly vindicated on most of my points here:
    Insurance is a condition for a loan
    You would be in breach of your loan contract if you let that insurance lapse
    Contents insurance is irrelevant when it comes to the interests of your lender.

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  50. August 1, 2014 10:08 am

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