What to Do When Disaster Strikes: Rebuilding After a Wildfire
Unpredictable weather, dry conditions, and record breaking heat have played a part in the nearly 80 wildfires burning in 15 states across the country since August. As of August 23rd, California was battling 25 fires covering more than 135,000 acres and Arizona was dealing with 11 fires spanning more than 31,000 acres. Homeowners in portions of both states faced evacuation orders, and as some orders are being lifted and residents are returning home, many are finding their houses have been severely damaged or completely destroyed.
Figuring out what to do when you’ve lost it all to a devastating wildfire is an overwhelming and emotional task. Here is what you can do to rebuild if your home has been damaged or destroyed by one of the country’s recent wildfires.
After you’ve received notice that it is safe to return home after a wildfire, it’s time to assess the damage. The most important piece of that assessment is to determine whether or not your home is habitable. A habitable home is defined by the Federal Emergency Management Agency (FEMA) as, “one that is safe, sanitary, functional, and presents no disaster-caused hazards or threats to the occupants.”
If you’re looking to seek additional living expenses (ALE) from your insurance policy, you’ll need to demonstrate that your home is uninhabitable. But what does that really mean? Housing rules and habitability standards vary by state and even by county and city. FEMA uses the following factors to determine habitability:
- The exterior is structurally sound, to include windows, doors, and roof.
- The electricity, gas, heat, plumbing, etc. are functional.
- The interior is structurally sound, to include floors, walls, and ceiling.
- There is safe access to and from the home.
- The septic and sewer systems are functioning properly.
- The water supply or well (if applicable) is functional.
If you believe your home is uninhabitable as the result of wildfire-related damage, you should contact your insurance company to access your policy’s ALE coverage. Your insurer will likely send an adjuster to your home to help you determine the value of what was lost in the wildfire.
To receive ALE, the damage to your home must have been caused by a condition covered by your policy. Most standard homeowners’ insurance policies will cover damage caused by a wildfire. However, in California, if you own a home in an area that’s considered “high-risk” for wildfire you may not be able to find an insurer willing to offer your home coverage. California does offer cheaper, less-comprehensive insurance for all homeowners who can’t find personal homeowners insurance through the California Fair Access to Insurance (FAIR) plan. Even though Arizona’s hot, dry climate makes wildfires a possibility year-round, the state does not offer a FAIR plan for homeowners at this time.
The ALE feature of your homeowner’s insurance policy will pay for additional costs of temporarily living somewhere else while your home is repaired or rebuilt. ALE typically covers:
- Hotel bills
- Rent for temporary housing
- Restaurant meals
Be aware that ALE is generally capped at around 20% of the dwelling coverage and comes with a time limit for usage. According to Diane Swerling, a principal at Swerling Milton Winnick Public Insurance Adjusters Inc., this means “if your home is insured for $200,00, you have up to $40,000 to spend on additional living expenses.” These funds would last through the designated period of time in your policy.
When it comes to temporary housing, you’re entitled to maintain your standard of living. While your insurer will typically work with you to find a good and comparable fit, Swerling notes that a REALTOR® will have a better grasp on local inventory than an out of state insurer.
Mortgage companies require homeowner’s insurance to protect themselves against natural disasters like wildfires. As long as the damage to your home was caused by a covered event, your homeowner’s insurance will cover your additional living expenses and the cost to repair your home which will free you up to continue making your mortgage payments.
If your home is completely destroyed by a wildfire, your insurer will pay off your mortgage. However, the article Do You Have to Pay Your Mortgage if Your House is Destroyed notes, “Whether you’ll receive enough to rebuild your home in addition to paying off your mortgage depends on what coverage you purchased when you selected your policy. ‘Replacement value’ coverage is not standard and you pay extra for that option.”
If you’re unable to pay your mortgage because of a wildfire, perhaps because you are unable to work temporarily, you can request a mortgage forbearance from your lender. These agreements allow you to make partial payments or skip payments without any damage to your credit. Be mindful that you will still be accruing interest during this time.
Whether you pay your mortgage, your insurer pays your mortgage, or you request a forbearance, you should contact your lender to let them know about your situation and find out the specifics for payment given your individual circumstances.
There are a variety of disaster relief options available to homeowners who live in a Presidentially designated disaster area. These programs can help fill in the gaps left by your insurance coverage.
- FEMA’s Individual Disaster Assistance: Homeowners who need assistance with housing beyond what is provided by their insurance policy can apply for FEMA’s Individual Disaster Assistance. If you’ve filed an insurance claim FEMA can provide you assistance if:
- Your settlement is delayed.
- Your settlement is not enough to cover your disaster-caused needs.
- You’ve used all the ALE offered by your insurer.
- You’re unable to find a rental unit.
- The United States Department of Housing and Urban Development’s (HUD) Mortgage Insurance for Disaster Victims Section 203(H): HUD’s Section 203(H) program provides mortgage insurance to protect the lenders of homeowners whose homes were destroyed or extensively damaged during a wildfire or other natural disaster. These zero down payment mortgages can be used to finance the reconstruction of your primary residence. This program is designed to be affordable, but not free. You will pay an up-front insurance premium at the time of purchase and you will also pay monthly premiums.
- The Department of Homeland Security’s Disaster Assistance Website: gov can help you determine if your home lies in a Presidentially designated disaster area. Their simple online survey can help you figure out which assistance programs are right for you. You can also register for assistance on this site and check the status of your application.
Arizona wildfires in 2020 have already burned more acreage than the wildfires of 2018 and 2019 combined. And California 2020’s wildfires have already burned more than 1 million acres of land. Burnt trees, destroyed houses, and a thick layer of ash can leave you with a lot to clean up when you’re able to return home. In most cases, debris on the street and any debris that may obstruct emergency vehicles will be removed by your city or town.
For debris on your property, there is a good chance your insurance policy will cover its removal. Some homeowner’s policies include debris removal through the category of “additional coverage.” If your policy contains this rider and your home is damaged by debris from a covered loss – in this case, a wildfire – your insurer will cover the debris’ removal for “a maximum amount of coverage equal to 25 percent of the amount paid for the direct physical loss, plus 25 percent of the amount of the deductible.” That means if you have $20,000 of damage, 25 percent of that is $5,000. If you have a $1,000 deductible, 25 percent of that is $250, meaning the maximum coverage you’d receive for debris removal would be $5,250. However, if there is debris on your property that did not cause any damage to your home, the cost for the removal of that debris would not be covered by your policy.
Once you’ve secured temporary housing, contacted your mortgage company, filed your insurance claim, requested additional disaster relief assistance, and cleared away the debris, you’re ready to begin rebuilding your home.
Your insurer will provide you with the amount you set in your policy to rebuild your home. Keep in mind that if you estimated the price to rebuild based on your mortgage amount or the market value of your home, the actual cost to reconstruct your house may exceed that figure. With lumber in short supply due to supply chain issues caused by COVID-19, you may find the cost of materials higher than expected. You should also consider that if you made upgrades to your home, but didn’t update your policy, recreating those improvements may not be possible with your insurance payout.
As you rebuild, if you’re financially able, you should consider making upgrades to your home that may protect you and your property when the next wildfire strikes. Common wildfire proofing upgrades for new construction include:
- Using fire-resistant building materials like insulated concrete forms (ICF).
- Adding a fire-resistant roof using Class A fire-rated materials like metal, concrete, or slate.
- Designing a home with a steeply pitched roof.
- Installing insulated double glazed, tempered glass windows with steel framing and roll-down metal fire doors.
- Creating a survivable space around your home.
This year’s wildfire season has been especially devastating. Homeowners and the communities they live in have a big rebuilding task ahead. Knowing how to start the rebuilding process and where to go while you do it is the first step on the journey back home.