By Leanne Mollica
Mortgage Broker | Mortgage Architects – Team Borle
Founder, My Mortgage Strategy
Serving Salmon Arm, the Shuswap, and British Columbia
This one feels a little different to write.
Living in the Thompson-Okanagan, wildfire season isn’t something we watch on the news from a distance.
We breathe the smoke. We check the maps. We get woken up by alerts. We watch the wind and the weather, and we worry about our homes, our friends, our families and our communities.
For those buying or selling a home during wildfire season, there is also another consideration that can very quickly become part of the transaction:
Your ability to obtain home insurance can affect whether your mortgage is able to fund.
Why Home Insurance Matters to Your Mortgage
Mortgage lenders require adequate property/fire insurance to be in place before they will advance mortgage funds.
Normally, arranging that insurance is a relatively straightforward part of preparing for closing.
Wildfire season can change that.
When a wildfire threatens an area, insurance companies may temporarily restrict new policies or changes to existing coverage in areas they consider to be at increased risk.
You may have heard people refer to a certain distance from a wildfire or evacuation zone as the point where insurance becomes unavailable. The reality is that there isn’t one universal distance or rule that applies to every insurer. Each insurance company has its own underwriting guidelines and determines when and where it will restrict coverage.
That creates a potentially difficult situation for someone purchasing a home.
A property that was insurable when you wrote your offer — or even when you removed your financing conditions — could become more difficult to insure before your completion date if wildfire conditions change.
And without the required insurance, your mortgage lender may not be able to advance the funds needed to complete your purchase.
Don’t Wait Until Closing to Arrange Insurance
If you’re buying a home during wildfire season, talk to an insurance professional early in the process.
Don’t assume that because insurance was available when you wrote your offer, it will necessarily remain available several weeks later.
Ask your insurance professional:
- whether coverage can be bound in advance;
- when that coverage becomes effective;
- whether changing wildfire conditions could affect it;
- what happens if the property is placed under an evacuation alert or evacuation order before completion; and
- what options may be available if an insurer introduces restrictions before you take possession.
The earlier you start that conversation, the more time everyone involved in your transaction has to deal with an issue if one arises.
Your Contract of Purchase and Sale Matters Too
There are also provisions that may help address wildfire-related insurance issues within a BC Contract of Purchase and Sale.
BC Financial Services Authority (BCFSA) has published an optional wildfire clause. When that clause is included in a contract, it can allow a buyer to extend the Completion, Adjustment and Possession dates if, despite their best efforts, a wildfire prevents them from obtaining binding fire insurance by the original completion date on commercially reasonable terms and rates.
There is also a separate Property Insurance condition that may be appropriate when writing an offer. This can allow a buyer to confirm they can obtain satisfactory property insurance before removing that condition.
These serve different purposes.
An insurance condition can help address insurability before conditions are removed.
The optional wildfire clause can help address a situation where wildfire conditions interfere with the buyer’s ability to obtain insurance as the transaction approaches completion.
Importantly, these provisions are not automatically included in every BC purchase contract, and whether either is appropriate depends on the individual transaction.
Your REALTOR® is the appropriate professional to discuss the contractual provisions that may be available and whether they should be considered when preparing your offer. For questions about the wording or legal implications of your Contract of Purchase and Sale, you should seek legal advice.
From my side as your mortgage broker, my role is to make sure you understand why the insurance piece matters to your financing and to work with the other professionals involved if an insurance issue threatens your mortgage funding.
What If You’ve Already Removed Your Financing Condition?
This is where wildfire season can become particularly stressful for buyers.
Removing a financing condition doesn’t necessarily mean that nothing can affect the mortgage between subject removal and completion.
Lenders still have funding requirements that must be satisfied at closing, and adequate property insurance is generally one of them.
If wildfire conditions change after you’ve removed subjects and you suddenly have difficulty obtaining insurance, contact your insurance professional, REALTOR® and mortgage broker immediately.
Don’t wait until the day before closing.
Depending on the circumstances and the terms of your contract, there may be options to explore. The sooner everyone knows there is a problem, the more opportunity there is to work through it.
What Happens to Your Mortgage If Your Home Is Damaged by Wildfire?
For homeowners who have been directly affected by wildfire, the questions are obviously very different.
Your home insurance policy will generally name your mortgage lender as a loss payee. That means your lender has an interest in the insurance proceeds associated with a significant insured loss.
If your home is damaged or destroyed, your insurance company and mortgage lender may both be involved in determining how insurance proceeds are handled and whether the property will be repaired or rebuilt.
Exactly how that process unfolds will depend on your insurance coverage, the extent of the damage, your lender and your individual circumstances.
Your insurance provider should be one of your first calls regarding the loss itself.
What If You Can’t Keep Up With Your Mortgage Payments?
A wildfire can affect much more than the physical property.
An evacuation can mean unexpected accommodation, food and transportation expenses. A business may be forced to close. Someone may temporarily be unable to work. Even without direct damage to your home, the financial disruption can be significant.
If evacuation, property damage or loss of income is making it difficult to keep up with your regular mortgage payments, please reach out to your lender or mortgage broker as soon as you can.
Depending on your lender and circumstances, there may be options available to provide some financial breathing room while you navigate everything else.
And you don’t need to have arranged your original mortgage through me to ask for help.
In some cases, you may be able to authorize me to communicate with your lender on your behalf and help you navigate the options available. If that’s not possible with your particular lender, I can still help you understand what questions to ask, what information to gather and where to start.
If You’re Under an Evacuation Alert or Order, Your Safety Comes First
If you are currently under an evacuation alert or evacuation order, your mortgage is not the priority. You and your family are.
The mortgage questions can come later.
If you’re buying, selling or closing on a home during wildfire season, we can work proactively with your REALTOR®, insurance professional and other members of your team to help identify potential issues before completion.
And if you’ve been directly affected by a wildfire and you’re trying to understand what happens next with your mortgage, please reach out.
You don’t have to try to navigate all of the moving pieces by yourself.
From one person living through another BC wildfire season to another — take care of yourselves, and take care of each other.