Selling a fire- or water-damaged house: insurance, mortgage checks and as-is sales
Short answer
Yes, you can sell a house with fire or water damage, either after repairs or as-is. Before you decide, report the loss to your insurer: the claim is often worth money whether you repair or sell. If you have a mortgage, the insurance check will usually be made out to you and your lender together, and the lender typically releases the money in stages as repairs are done, so plan the sale around how that money will be handled.
The insurance claim comes first
Whatever you decide about the house, start the claim. The CFPB's first step after a home is damaged is to call your insurer and file a claim, then contact your mortgage servicer (CFPB). The Pennsylvania Insurance Department's disaster guide gives the same order of operations (PA Insurance Department):
- Photograph or video the damage before you clean up.
- Make only the repairs needed to prevent more damage, such as tarping a roof or boarding windows, and keep every receipt.
- Don't make permanent repairs until the insurer approves them.
- Write down who you talk to and when, and get the full repair cost before agreeing to a settlement. You can negotiate.
An adjuster inspects the damage and the insurer pays either replacement cost or actual cash value, depending on your policy. Actual cash value accounts for age and condition, so it can be well below the cost to rebuild (CFPB).
Florida deadlines are strict. A new or reopened property claim is barred unless notice reaches the insurer within one year after the date of loss, and a supplemental claim within 18 months (Fla. Stat. 627.70132). The insurer must acknowledge your claim within 7 days (627.70131(1)(a)) and pay or deny it within 60 days unless the delay is beyond its control (627.70131(7)(a)). Florida insurers must give you a Homeowner Claims Bill of Rights within 14 days of your first communication about a claim (627.7142), and the Department of Financial Services offers mediation for disputed residential property claims (Florida DFS).
Why your lender co-signs the insurance check
If you have a mortgage, your lender is listed on the policy as the loss payee, so its name goes on the check. New Jersey's Department of Banking and Insurance explains that the mortgage holder "is included on the check because they have a secured interest in the property" (NJ DOBI). The CFPB says most mortgage agreements require this (CFPB).
How the money is released depends on the servicer, the loan's investor and the size of the claim. Smaller checks may be released all at once. Larger ones are often held and paid out in installments as the work progresses, sometimes after the servicer inspects the repairs (NJ DOBI). NFIP flood claim checks work the same way: if you have a mortgage, the check is written to you and your mortgage company (FloodSmart).
Call your servicer as soon as you get the check and ask how endorsement and release work for your loan. Keep paying the mortgage while the claim is open; you're still responsible for payments (CFPB). If you can't, ask the servicer about disaster relief or forbearance options (CFPB).
Repair vs sell as-is
There's no single right answer. This table lays out the trade-offs:
| Situation | Repairing first tends to make sense | Selling as-is tends to make sense |
|---|---|---|
| Insurance payout | Replacement-cost coverage that will pay for most of the work | Actual-cash-value payout well below rebuild cost, a denial, or no coverage (for example, flood without a flood policy) |
| Mortgage | You can keep paying while funds are released in stages | Payments are hard to keep up, or the payoff would absorb the claim money anyway |
| Time | You can manage contractors, permits and inspections for months | You need to move, the house is inherited or vacant, or you live out of state |
| Extent of damage | Damage is limited to one area and the structure is sound | Structural, smoke, mold or widespread water damage with an uncertain scope |
| Your plans | You want to live in the house or rent it out | You were already thinking of selling |
Water damage has a clock on it. Flood and property policies don't cover mold damage if the policyholder fails to act to limit it (FEMA), so dry the house out and document it even if you plan to sell. Damaged homes may also have open permits or code notices; see selling with code violations if you're in Pennsylvania.
Who keeps the insurance money when you sell
Who ends up with the claim money isn't automatic. It's settled by your policy, your mortgage and your sale contract. Common arrangements:
- Seller keeps the claim, sells as-is. You finish the claim, the house sells at an as-is price, and the claim money goes through your servicer. When the mortgage is paid off at closing, ask the servicer how any funds it is holding will be applied or released.
- Price reflects the claim. Some buyers pay a lower price and ask the seller to transfer the right to the remaining claim proceeds. Whether that's allowed depends on your policy and state law, so get your insurer's answer and an attorney's review before agreeing.
- Repair credit. You keep the claim money and give the buyer a credit at closing. This needs the lender's cooperation if funds are still being held.
Whatever you choose, write it into the agreement of sale, and disclose the damage and the claim history to the buyer. Pennsylvania, for one, requires sellers to disclose known material defects (68 Pa.C.S. § 7303).
Florida: flood vs wind policies
Storm damage in Florida often involves two policies. Most homeowners insurance does not cover flood damage; flood insurance is a separate policy, and an NFIP policy typically takes 30 days to go into effect (FEMA). New Jersey's regulator states it plainly: all homeowners policies exclude water damage caused by flood (NJ DOBI). Pennsylvania lists flood and earthquake as common exclusions (PA Insurance Department).
FEMA draws the line this way: a flood policy covers water that enters from the ground up, such as storm surge or an overflowing river. Rain driven in by wind, or water that comes through a wind-damaged roof, is not flood damage and falls to your homeowners or wind policy. After a hurricane you may need to file with both insurers and work with two adjusters (FEMA, archived fact sheet). NFIP claims commonly take four to eight weeks to finalize and pay (FloodSmart).
We buy damaged houses as-is in Tampa, Jacksonville, Philadelphia and Trenton, and across Pennsylvania, New Jersey, Delaware and Florida.
Frequently asked questions
Can I sell a house with fire damage without fixing it?
Yes. You can sell as-is to a buyer who accepts the condition. File the insurance claim first, disclose the damage, and settle in the sale contract what happens to any claim money.
Why is my mortgage company's name on my insurance check?
Your lender is the loss payee on the policy because it has a secured interest in the house. The CFPB says insurers generally make the check out to both you and your servicer, and most mortgage agreements require it.
Will my lender release all the insurance money at once?
Not always. Smaller amounts may be released right away. Larger claims are often paid out in stages as repairs progress, sometimes after an inspection, according to the CFPB and NJ DOBI.
Do I have to repair the house if I take the insurance money?
It depends on your mortgage and your policy. If you have a mortgage, the servicer controls the release of funds and usually ties it to repairs. Ask your servicer and insurer before you decide to sell instead.
How long do I have to file a property insurance claim in Florida?
Notice of a new or reopened claim must be given within 1 year after the date of loss, and a supplemental claim within 18 months (Fla. Stat. 627.70132). For hurricanes, the date of loss is the date of landfall.
Does homeowners insurance cover flood damage?
Generally no. FEMA says most homeowners insurance doesn't cover flood damage, and New Jersey's regulator says all homeowners policies exclude flood. Flood coverage is a separate policy, usually through the NFIP.
Sources
- Consumer Financial Protection Bureau: How do home insurance companies pay out claims? and What do I do if my house was damaged or destroyed?
- New Jersey Department of Banking and Insurance: Frequently Asked Questions for Insurance Proceeds Checks and Homeowner's Insurance
- Pennsylvania Insurance Department: Insurance Guide for Natural Disasters and Homeowners insurance
- Florida Statutes: 627.70131, 627.70132, 627.7142; Florida Department of Financial Services, Mediation
- FEMA: Flood Insurance, Wind Damage Versus Floodwater Damage (archived fact sheet); NFIP Start a flood insurance claim
- Pennsylvania General Assembly, 68 Pa.C.S. § 7303
This is general information, not legal or tax advice. Insurance policies, mortgage terms and investor rules differ, and claim deadlines vary by state and policy. Read your policy, call your insurer and servicer, and talk to an attorney or your state insurance department before you sign a sale contract that involves an open claim.