In the wake of Hurricanes Harvey and Irma, many uncommon homeowner and mortgage scenarios have been thrust into the spotlight. As those in Houston and the surrounding areas are faced with unimaginable challenges from this surprise hurricane, the following tips may give guidance and peace of mind.

One such situation involves a house that is damaged during escrow – when the homebuyer is under contract to purchase the home, the mortgage is in place, the seller has accepted the deal, and both parties are simply waiting for everything to finalize. This is a rare event, but it can happen, especially after a hurricane, and it helps to be prepared.

Know Your Contract

Every purchase contract is different and it is critical to read the contract thoroughly both before and after you sign. Most contracts have clauses that allow the homebuyer to cancel in the event that the home is damaged by a value of more than 5% of the initial purchase price.

In other words, if the home you were to purchase is damaged from a flood, and the damage results in a loss of value of more than 5% of the home, you are often able to cancel the contract or have it renegotiated.

However, some contracts do have clauses that exclude certain types of damage, such as flood damage, particularly if it is in an area that is a known flood risk. This may be true of properties in Corpus Christi, where floods tend to be a bit more common. That is why it is critical to check your contract. If it’s not clear, you may need to ask your lawyer.

What if Your Contract Doesn’t Have a Damage Clause?

If you don’t have any type of damage clause in your contract, the next steps can be tricky. Some contracts, even those without cancellation provisions, may require the seller to make necessary repairs or renegotiate the value of the property based on a home inspection.

If no clear agreement can be reached, or the contract does not make it clear what should occur in the event of damage, it may be necessary to hire a real estate lawyer. These situations are very rare, however, as most contracts clearly stipulate what to do in the event of damage during escrow.


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