The house is yours until the foreclosure sale is actually conducted by the bank. So when the leaking toilet in her condo damaged the unit below, my client, the homeowner, stands to be responsible for the damage.
The mortgage lien only gives the lender the right to foreclose and take title to the property if you breach the loan agreement. Until that foreclosure sale, the ownership of the property remains with the homeowner. Being “in foreclosure” doesn’t alter that.
As my client learned, that can bring the bitter with the better. She was able to live in the condo at no cost while the foreclosure was pending. But when there was a disaster, she bore the bitter consequences of being the property owner.
You see, the client had cancelled her homeowners insurance. To make matters worse, she filed bankruptcy before the pipe burst. So any liability she has for the damage to her neighbor’s property will not be discharged in the bankruptcy: bankruptcy generally addresses only obligations that arose before the case was filed. Nor were the damages to the adjoining unit covered by insurance.
I usually make this point about liability following the property with extreme examples: the toddler who breaks their neck on the porch; the burglar who falls through the skylight. We all wince at the thought. But here, my tale of potential liability played out with water pipes. It didn’t require an extraordinary event to expose the homeowner to financial responsibility.
Don’t be lulled into thinking that the insurance that a lender may put in place if you don’t obtain the necessary insurance protects you. The lender isn’t about to pay more than what’s necessary to protect their interest in the property if the property is damaged. Damaged caused by the property or on the property follows the property owner. And the owner is the borrower facing foreclosure, until the sale is held.
As long as you are the owner of the property, you need liability insurance.
Image courtesy of Irisgodd3ss.
Cathy Moran, Esq.
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Last modified: August 20, 2013