Most homeowners in Costa Rica don’t even think about fire and earthquake insurance and if they still have to pay the mortgage after their house was destroyed.
You own(ed) a house in Costa Rica. This house was destroyed by a natural disaster or fire and you are paying a mortgage. What should you do? Can you just stop paying the mortgage?
Even if you are the most careful homeowner in the world, a natural disaster or a fire can hit you, there is nothing you can do about it. During a hurricane or earthquake, your house can be flooded or totally destroyed.
Often, homeowners do not take out insurance to protect their assets against fire or natural disasters. For those who do not carry insurance, the answer to the question is pretty simple: yes, you still have to pay the mortgage, even if your property is totally destroyed.
But what happens when you have a mortgage?
Lenders
Banks, as well as private lenders, when they take out a mortgage on a property, oblige the mortgage holder to take insurance on the property. The amount to be insured is usually not the real value of the property but the amount of the loan.
BUT, the insurance will only pay out the value of the construction, not the value of the land. Unless flooding or an earthquake renders the property useless forever.
That means, that if the land is still in good condition, it can be used to reconstruct the building.
Photo from Tico Times – houses destroyed during Tropical storm Nate
Pay the mortgage
The one to receive the insurance money, when the house was destroyed, is the lender. If there is any insurance money left over after that, it will be yours. So, depending on how many years you’re into your mortgage payment, you might be left with enough money to rebuild your house. or you lose it all.
Replacement value
Take into account how old the construction is when you sign the mortgage. There is a good reason for that. It is possible, for example, that your house was destroyed when it is 20 years old.
The insurance company will then pay the replacement value of a 20-year old house. This money will not be enough to replace the same size and same quality of the destroyed house.
Do you have a mortgage and want to recover your investment when your house was destroyed? Then check the mortgage documents or talk to your lenders. You probably want to make sure your investment is covered.
Photo from LAVANGUARDIA – 7.6 Earthquake in Nicoya 2012
Land damage
Be aware, that you need to check your property well if after the house was destroyed by an earthquake before you start construction again. Especially when you’re on a hill, it is possible that the land is also damaged.
Maybe now you will have to build retainer walls, so the property doesn’t get damaged any further. Or maybe because of the earthquake, the property stopped draining rainwater. This happens when the topsoil is all clay. In such case, the land doesn’t have the same value as it did before.
To be able to prove this to the insurance company, I recommend you consult a geologist or a structural engineer.
Photo from The Costa Rica Star – Nicoya during Nate
Insurance
If your property is in Costa Rica, and you are insured, you probably have INS insurance. Take into account that INS will do everything possible to pay as little as possible. Make sure you have all your ducks in a row if you have a mortgage on your property.
Do you have a mortgage on a property? Then, I recommend you check your insurance with your insurance agent as soon as possible.
Looking to buy or sell a property in Costa Rica? Then contact us, we are the experts.
Looking for a mortgage? At this moment, we do not have any lenders to supply you with an expat mortgage. But, if you’re a U.S. citizen, we can offer you a residential mortgage with a private lender. Please fill out the form below
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