Fire damage, depleted insurance put homeowners in a tough spot

A: First, we’re so sorry this happened to you. This is one of those curve balls life sometimes throws that can really upend your life. The silver lining, of course, is that you seem to have no ongoing health issues related to the fire.

We assume that you and your neighbor owned your respective townhome units outright and you are not part of a homeowners association. So, you carry insurance on your home and your neighbor has insurance to cover damage or loss to the property. In some homeowners associations, the association carries insurance that covers damage or loss of the buildings and the owners only need insurance coverage for the interior of the homes (and the home’s contents.)

The main reason to buy homeowners insurance is to protect you from catastrophic events. Which is what this fire was. You’ve been out of your home for 17 months and your insurance covered your expenses for living out of your home after a casualty for up to 12 months. Now that the 12 months are up, any additional housing expenses you incur are on your dime.

If you carry sufficient insurance coverage, your policy should cover the rebuilding, repairing and restoring of your home. We suspect that your insurance company is doing this, as you didn’t mention any problems with how much money your insurance company is providing for the restoration. It seems the only issue you’re having is with the length of time it’s taking you to rebuild post-fire.

As for your neighbor, you may well have a claim against them for the fire that started in their home. Did your neighbor carry sufficient homeowners insurance? Possibly not, since it appears they’ve decided to move on and let their lender foreclose.

If your neighbor didn’t have insurance, or carry a big enough policy, getting money from your neighbor or their insurance carrier could be an uphill battle. It’s possible your neighbor had some coverage, just not enough to cover the repairs needed on his property. It’s also possible they also carried an umbrella liability policy that could cover not only the repairs to your property but also your losses due to the fire.

Your insurance carrier may have already thought of this and has filed a claim against the neighbor’s insurance to cover the cost of the repairs and out of pocket expenses on your townhome.

That doesn’t mean it isn’t worth exploring. Talk with a litigation attorney who has expertise in insurance claims about what options you have and whether it’s worth doing some sleuthing first to make sure you have a good chance of getting something from the neighbor or their insurance carrier.

Why do we say this? Let’s assume your neighbor’s liability limit on their insurance policy is $300,000, and the insurance company paid out that much to the neighbor and their lender (since there was a mortgage on the property). We doubt you’ll get any money by going after the neighbor in that situation.

But if the neighbor has a million dollar limit on their policy, and only used up $300,000, you have a chance to get reimbursed and get your attorney’s costs covered as well.

(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)