The home or flat fire is simply a script that all property owner fears. The flames of life's achievements are an unimaginable tragedy. Unfortunately, erstwhile the dust and smoke settles, there is simply a violent financial reality. Many people in shock ask themselves, ‘If the home burned down, did the mortgage besides disappear’? The answer is painful and unambiguous – Absolutely not.. The bank will not forget the debt and the work to repay remains in force.
Understanding this rule is crucial for all borrower. The credit agreement is simply a financial commitment to the bank, not to the property itself. The home or flat is only security of this mortgage debt. The demolition of the safety will not cancel the debt itself. The bank borrowed a circumstantial amount of money that the borrower had undertaken to return at a certain time, regardless of the destiny of the property. This is simply a fundamental rule that many Poles forget, which leads to dramatic consequences in the face of tragedy.
Why doesn't the credit vanish with the house? knowing the agreement with the bank
To full realize why repayment is inactive required, you request to go back to the very essence of the credit agreement. By signing it, we don't buy a home from a bank. We're in debt, and the bank becomes our creditor. The property on which the mortgage is established is simply a form of warrant for the bank to recover the money if we halt paying the instalments.
When the property is destroyed, for example as a consequence of a fire, the bank loses its basic security. From his perspective, the situation becomes very risky. Debt inactive exists, but the “guarantee” in the form of a home has evaporated. Therefore, not only does the bank not cancel the loan, but it may even tighten its position by fearing the repayment of borrowed funds. Treatment of fire as a reason for debt relief is simply a fundamental mistake, which may cost not only the demolition of the house, but besides lead to full financial ruin and repo proceedings.
Insurance policy. Your only rescue in the face of disaster
Now that we know the debt won't go away, there's a question of resolution. The only effective solution is properly constructed insurance policy. This is not an unnecessary expense or a formality required by the bank. It is an absolutely crucial component of the financial protection of all property owner on loan. In practice, almost all bank requires the insurance of property from fire and another random events at the financing stage.
Moreover, banks usually require alleged assignment of insurance policy rights. What does this mean in practice? In the event of full harm specified as the burning of the house, the insurer pays compensation first to the bank in order to cover the remaining repayable debt capital. If the amount of compensation exceeds the amount of debt, the surplus goes to the property owner. With this mechanism, the debt is repaid and the borrower is ‘clean’ and can have another funds. Without this policy, all financial work falls on his shoulders.
No insurance is simply a financial suicide. What's the bank gonna do?
The situation where the home burned down and the owner did not have a valid insurance policy (or the policy expired and was not renewed) is the worst possible scenario. The consequences are immediate and very severe. First of all, the work to pay monthly instalments remains unchanged. You gotta pay for something that doesn't be physically anymore.
However, this is only the beginning of problems. For the bank, the demolition of uninsured property is simply a high-level emergency signal. The failure of a mortgage is simply a gross violation of the terms of the credit agreement. In specified a situation, the bank has the right to take extremist steps. The most serious of them is denunciation of the credit agreement and placing all remaining debt in immediate maturity. This means that the borrower can receive a call to pay respective 100 1000 PLN within 30 days. If he does not do so, the bank will mention the case to the court and then to the bailiff who will effort to take over another assets of the debtor – salary, savings or another properties.
Can the bank show a “human face”? Debt restructuring options
Even in specified a dramatic situation, not everything is lost, although the road will be bumpy. It is crucial that immediately after the event contact the bank, present the situation and show willingness to cooperate. Hiding a problem is the worst strategy possible. Banks, although following procedures, may exceptionally offer certain forms of assistance.
The most common option is called credit holidays, i.e. temporary suspension of instalments (usually from 3 to 6 months), which gives time to settle cases. Another anticipation is credit restructuring, for example, by extending the lending period to reduce the monthly instalment. However, it should be remembered that this is only the good will of the bank and not its obligation. The Bank will examine the current repayment past and overall financial situation of the client. If you have a policy, the process is much simpler. If you do not have it, the negotiations will be highly difficult, but it is absolutely essential to effort to avoid a recovery scenario.
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The fire destroyed the home on loan. The bank absolutely demands repayment! There's 1 way out.
