Q&A; / THE SOUTHLAND FIRESTORM : Some Do’s, Don’ts for Homeowners, Buyers in Aftermath
The fires that swept across Southern California this week have raised some important questions among homeowners and buyers. Here are some of those questions--along with the answers from the accounting firm Kenneth Leventhal & Co., the law firm of Thorpe & Thorpe and other real estate experts.
*
Q: Do I have to continue making my mortgage payments if my home was damaged or destroyed by fire?
A: Legally, yes. You borrowed the money and it must be repaid, even if the house is no longer standing. However, most Southern California lenders have already said they are willing to allow borrowers who suffered a loss from the fires to either skip some payments or make some other type of arrangement to lighten the financial burden. Call your lender immediately to see what type of help you can get. If your lender doesn’t hear from you soon, it will expect to get a full payment by the due date on your statement.
*
Q: The first installment on my property taxes is due next month. Will the county give me any tax relief?
A: Yes. All Southern California county tax assessors are willing to postpone disaster victims’ property tax bills, but you need to fill out a few forms first. Call the nearest regional office of your county assessor for more details.
*
Q: What will happen to property values in the areas affected by the fires?
A: Prices in and around the fire zones are expected to be soft for at least a few months until the rebuilding effort gets under way and would-be buyers see that burned-out homeowners have confidence in the area and are planning to stay put. Unless those owners decide to dump their properties on the market all at once and move out--which is highly unlikely--prices should return to their previous levels relatively soon. That’s what happened in the 1991 fire that devastated Oakland.
*
Q: What happens to the buyers and sellers who were in escrow when the fires hit?
A: Unless the sales contract states otherwise, a buyer who agrees to purchase a house that is later destroyed while the sale is in escrow can usually back out of the deal and get his deposit back. It’s a stickier situation if the home is damaged. The seller might be able to insist that the sale be consummated if the damage is minor and can be repaired before the escrow is set to close. But the buyer may be able to back out if the damage was extensive or if the surrounding neighborhood was so devastated that the value of the house dramatically decreased.
*
Q: Will the proceeds from my fire insurance policy be taxable?
A: Generally speaking, you won’t have to pay taxes on the proceeds if you use the money to build or buy a new home, because you are simply replacing the one you lost. But if you decide not to replace your home, at least part of your proceeds may be taxable.
*
Q: Does the IRS set a time limit on how quickly I must replace my house?
A: Yes, but it’s a pretty generous one. Since all of the new fire zones are now designated “presidentially declared disaster areas,” you have up to the end of 1997 to build or buy a new house and avoid any taxes. Taxpayers who don’t live in disaster areas generally get only two years.
*
Q: I had to move because of the fire, but my insurance company is reimbursing me for my temporary living expenses. Do I have to pay tax on the reimbursements?
A: Reimbursements are not taxable, unless they exceed your normal living expenses. To be on the safe side, keep all your receipts in case the insurance company or the IRS asks to see them.
