SANTA CRUZ (June 29, 2008) - Losing a home and all of one’s possessions in a fire is an unimaginable nightmare. Santa Cruz County has experienced an unprecedented loss of home and personal property through 3 large brush, pasture and timber fires within just a 30 day period. While there are precautions homeowners can take to slow down a wildfire and to possibly save their home, there is little that can be done if a home is in the path of a fast moving and powerful wildfire.

One obvious way a homeowner can help himself is to be sure that his property is insured against a catastrophic loss. It is both surprising and sad to read that some of the families that have lost their homes had no insurance. Insurance will certainly not bring back the invaluable possessions that are lost but considering that a home usually represents the lion’s share of a homeowner’s net worth, it will help alleviate the financial loss.

Homes with conventional mortgages are required to have insurance and lenders constantly monitor homes to assure that they are covered. The Deed of Trust that borrowers sign, which accompanies all mortgages, specifies that if the homeowner does not keep the insurance policy current, foreclosure proceedings will commence. In the event a lender discovers that a homeowner has dropped insurance coverage, an insurance policy will be imposed and the lender will demand that the homeowner pay the monthly premium with the mortgage payment.

Lenders require that homebuyers have a full year of insurance paid in advance as a condition of funding the loan. Refinancing homeowners must also have their current insurance reviewed to make sure it is adequate and that at least 6 months is paid in advance. From time to time refinancing homeowners are surprised to find out that their current insurance coverage is no longer adequate and must be increased to provide proper coverage.

Of course, it goes without saying that homeowners must also do their part to make sure their homes are as firesafe as possible. Providing a defensible space around a home, having adequate water, hoses, shovels and fire extinguishers on hand and paying attention to the applicable building codes are all ways homeowners can help themselves.

Flooding is another potential hazard that homeowners face. Lenders also scrutinize flood plain maps prior to closing escrow on a purchase or a refinance. If the home is in a designated flood plain, the homeowner will be required to carry and pay for flood insurance which must be kept in force throughout the life of the mortgage.

Homeowners who have impound accounts must also be diligent to assure themselves that their insurance is current. Although borrowers who have an impound account for insurance pay monthly into an account with the lender, these funds may either not keep up with insurance premium increases or may get misplaced causing the insurance coverage to lapse.

It is prudent for every homeowner to review their insurance coverages with their insurance agent on an annual basis. No one likes paying for insurance until a catastrophe occurs but when it does, we are glad we have it!

This column is written every Sunday by Peter Boutell, Certified Mortgage Planner and a principal at Santa Cruz Home Finance. You may reach him at (831) 425-1250 of email him at Peter@SantaCruzHomeFinance.com.