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Selling a fire, storm or water damaged house in Louisville

You can sell a Louisville house damaged by fire, a storm, a flood or a burst pipe without rebuilding it, either before the insurance claim settles or after. Cash buyers price the damage into their offers. Three things shape the deal: who keeps the insurance money, since claim checks usually name your mortgage servicer too; whether the house is in the floodplain, where repairs costing half or more of the building's pre-damage value trigger current flood standards; and whether Louisville Metro has ordered the structure repaired or demolished.

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Does this sound familiar?

If one of these fits, this guide is written for you.

  • The claim is still open, the estimate looks low, and the house sits empty in the meantime.
  • The insurance check is made out to you and your mortgage company, and nobody can spend it.
  • The repair bill is more than you want to take on, even with the insurance money.
  • Metro has cited the house as unsafe or sent an order to repair or demolish it.

Step by step

What to do, in order

Before you accept any offer.

  1. Secure the house and document the claim

    If it is safe, cover holes in the roof and windows and get the water out, keep every receipt, and photograph the damage before anything is thrown away. The Kentucky Department of Insurance advises meeting the insurer's adjuster before signing with contractors or public adjusters, who charge fees, and waiting on permanent repairs until the adjuster has inspected. Most policies require a claim within one year. Flood damage is covered by a flood policy, such as one from the National Flood Insurance Program, not by a standard homeowners policy.

  2. Bring the mortgage servicer in early

    The settlement check will probably be made out to you and your mortgage servicer. Servicers typically release repair money in stages: some before work starts, more at the halfway point and the rest once the work passes inspection. Kentucky requires insurers to pay within 30 days of receiving proof of the claim, and a settlement delayed without a good faith attempt earns 12 percent annual interest. If you plan to sell instead of rebuild, ask the servicer in writing how it will handle the claim money when the loan is paid off.

  3. Check permits and the floodplain before any repair

    Louisville Metro requires a building permit to alter or repair a building under the Kentucky Building and Residential Codes. In the floodplain, repairs also need permits from MSD and the Kentucky Division of Water. Damage of any origin, including fire and wind, counts as substantial when restoring the house would cost 50 percent or more of the structure's pre-damage market value, land excluded. A substantially damaged house has to meet current flood standards, such as a raised first floor and mechanical equipment. Check a property on LOJIC Online or call MSD at (502) 540-6000.

  4. Answer any unsafe structure or demolition order

    Louisville Metro orders owners of dilapidated or unsafe structures to repair or demolish them at their own expense, and can demolish right away when a building is in danger of collapse. If Metro does the work, the cost becomes a lien that can outrank even the mortgage, though not property taxes, lasts 10 years and can be foreclosed. Under Kentucky's code enforcement law you have 7 days from a citation to pay or ask in writing for a hearing, and 30 days to appeal a final order to District Court, so note the dates on any notice.

  5. Choose your timing and disclose the damage

    If you sell before the claim settles, the contract has to say who keeps the claim and any payments still to come. Selling after it settles gives everyone fixed numbers. Either way, describe the damage, the claim and any substantial damage letter plainly. When a real estate agent is paid, Kentucky's seller disclosure form asks whether the house was ever damaged by fire or another disaster, about flooding and drainage, about mold, and whether it sits in a Special Flood Hazard Area.

Paperwork

Documents to gather

A title company or attorney will ask for most of these. Having them ready shortens the closing.

  • The insurance policy, declarations page and claim number
  • The adjuster's estimate and every payment or denial letter
  • A recent mortgage statement and any servicer letters about the claim money
  • Photos, repair estimates and receipts for emergency work
  • Any citation or order from Louisville Metro and any letter from MSD
  • The fire department or incident report, if there is one

What we do

How Louisville Cash Offers can help

  • Buyer partners who purchase damaged houses make offers on the house as it stands, so you can compare them before deciding whether to rebuild.
  • Include the adjuster's estimate and any Metro or MSD paperwork with your request so offers account for them from the start.
  • Ask each buyer how its offer treats the open claim and how soon it can close.
  • Requesting offers is free and carries no obligation, so you can still choose to repair and keep the house.

Caution

Watch out for

  • The Department of Insurance warns against door-to-door contractors after a storm. Ask for identification and proof of liability and workers' compensation insurance, and insist on a written contract with the work, total cost and completion date.
  • The first insurance payment is often an advance, not the final settlement. Do not sign a final release until you are satisfied, and remember you can get independent estimates.
  • Tell buyers what repairs have already been done and whether they were permitted. Floodplain work done without MSD and state permits can follow the house to its next owner.

Questions

Questions about this situation

Can I sell my damaged Louisville house before the insurance claim is settled?

Yes. Put in the purchase contract who keeps the claim and any payments still to come. Claim checks usually name your mortgage servicer as well, so if the loan will be paid off at closing, ask the servicer in writing how it will release any insurance money it is holding.

What is the 50 percent rule for damaged houses in Louisville's floodplain?

If restoring a house in the floodplain would cost 50 percent or more of the structure's market value before the damage, not counting the land, it is substantially damaged and has to meet current flood standards. That applies to damage of any cause. After a flood, a National Flood Insurance Program policy's Increased Cost of Compliance coverage can pay up to $30,000 toward elevating, relocating or demolishing the house.

What happens if Louisville Metro orders a damaged house demolished?

Read the order and its deadlines right away. Metro first orders the owner to repair or demolish. If Metro tears the house down itself, the cost becomes a lien that can rank ahead of the mortgage, though not property taxes. You can still sell, but buyers need to see the order, and any lien is paid or resolved at closing.

Sources

Where the facts on this page come from, with the date each source was read.

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