Rental property totaled - fire damage due to burning car - options?

[YoungStache]

So I own a multi-family property with 3 leases in a landlord-friendly city/state, though I am out-of-state. And I got a call from the property management company saying that a car caught on fire next to the house and damaged the house. One of the tenants had just moved out weeks ago, prior to the incident. I got a text today from the tenant renting out the garage for storage that he had to move out. Nobody was hurt. It was actually on the local news, and the owner of the car was in the video, along with the fire department. Sounds like he was having car problems and temporarily parked by the house and then it ended up catching on fire.

The homeowner's insurance company is reviewing the claim and thinks that it is a total loss and is waiting for approval from his supervisor. I don't yet have details of the claim amount. My homeowner's insurance is actual cash value (ACV), and the home has appreciated a little bit over the amount of fire damage coverage (policy fire coverage is 155,000, property appraised at 171,000 last year). It seems like I should get the ACV amount and lost rent, but I'm thinking maybe it won't cover everything due to the home replacement cost being worth more, and factoring depreciation. Is there room for negotiation?

Is there a way I can go after the owner's car insurance liability/umbrella coverage? Considering we know his name and he was interviewed for the news clip. Where would I start and what would be the process? Would it involve the homeowner's insurance company?

Any advice or insight would be appreciated, as I've never been in this situation.

[waltworks]

That sucks, I'm sorry.

Your insurance company will go after him/his insurance company, you don't need to deal with that.

You'll need to go through the verbiage in the insurance contract very carefully to figure out what you will get, but I doubt you'll get more than the policy maximum, no matter how valuable the property now is. Usually a good insurance agent will stay on top of this and get in touch periodically to see if you want to increase the coverage if your property is worth more. Sounds like that didn't happen, though. I don't know on depreciation, but my guess is that won't matter here.

Remember that the coverage is for the *structure* and not the land (at least I assume). Depending on how you claimed this on your taxes for depreciation purposes, the insurance company could make an argument that the structure is only worth $100k or something, too.

If your policy specifically covers lost rent, you should get that. Does it? Some cheap landlord policies don't.

Good luck!

-W

[cool7hand]

Your insurance company will only go after the other carrier to cover the extent of their own loss--that means the cap on the value of what they must cover and any lost rent for whatever period the policy covers lost rent. If your loss is in excess of your policy, you should talk to a local attorney about your chances of recovering the difference from the car insurance company and the owner of the car. Search for an attorney who represents both insureds and insurance companies but not either of the insurance companies involved. You might be able to find an attorney to take the case for the excess on a contingency basis if a lot of money is involved, but you'll probably have to find someone on an hourly basis. If hourly, ask a lot of questions about chance of success, budget, likely times to settlement and/or trial. Ask those questions up front and at every major milestone: pre-litigation negotiation; filing; paper discovery; depositions; motions; etc. If the other person's insurance policy limits do not cover all of the excess, also be sure to have the attorney analyze the individual's income and net worth to make sure you can actually recover.

I hope that helps.

I hope that helps.

[YoungStache]

I think I will have a better idea once I get the homeowner’s insurance payout amount, and compare it to the contractor’s estimate to see if it can cover the work done and rent-ready.

I would prefer not to go the independent attorney route, as it would cost time, money and headache. Fortunately the property is in a LCOL area...

Big question is: if the homeowner’s insurance amount is inadequate in that case, can I just keep the payment and sell the land/property as-is? Or does it have to be used to renovate?

[cool7hand]

I've never heard of a policy that requires you to use comp for your loss it in a certain way. The law allows the injured party to decide how best to mitigate their losses, including via an as-is sale to another owner who wants to demolish and rebuild.