After losing our home in the Tubbs fire in October of 2017, we finally just broke ground on our rebuild a few weeks ago and are scheduled to pour our foundation in about a week - over 18 months later.
But back then, we didn't necessarily know what we were going to do. Should we rebuild? Should we sell the lot and buy a new house? Could we build a manufactured home on my parents' lot out in the country? Could we sell the lot and build a new house somewhere else?
If you're in a similar spot after losing your house to a fire, hopefully you can learn from our experience.
Insurance is just plain confusing. I'm not going to pretend to be an expert, and I'm not going to pretend to have everything figured out, even now. But here are the basics.
Depending on how insurance goes could impact what you decide to do. First of all, insurance is broken up into three categories:
1. Rebuilding/Replacing the house
This is a big check that gets paid to a combination of you and your mortgage company. You don't get this money, it goes directly toward your loan. If you decide to rebuild, essentially the loan gets "paid off" and transforms into a construction loan. Then you have to get them a bunch of info from your builders in order for them to be able to pay the them directly.
The amount in your policy can be used to pay for a rebuild, or it can be used to pay for a replacement. This means you could have a new one built elsewhere or buy a house. The catch here is that there are extra funds that you can tap into ONLY if the rebuild costs exceed the amounts in certain categories. For example, there's a certain amount that can be adjusted for inflation of materials costs, but if you use your money to move and buy a new house, you can't tap into that.
2. Displacement Costs
Insurance will reimburse you for any expenses you accrue that you otherwise wouldn't have had if you hadn't lost your home. The obvious one is rent. They'll pay for you to rent a place while you're displaced from your home. They'll also pay for extra miles you have to drive, for example. This doesn't include replacing your stuff.
3. Replacing Your Belongings
This is also known as personal contents. Your policy says how much you are allotted to. I think usually it's a percentage of your house coverage. We were able to call our insurance company, Farmer's Insurance, the day of the fire and report the loss. They transferred a percentage of our contents money immediately, directly to our bank account. Within 3 days we had a large chunk of change that helped out immensely with our initial expenses.
The normal procedure for accounting for your losses is grueling, and could easily be the most stressful part of the process. They say that if you could pick your house up and shake it, anything that falls out is covered by this. That's a lot of stuff.
Basically insurance pays out the depreciated amount of all your items, and then once you replace them (save your receipts!) they reimburse for the full amount. It's a bit more complicated than this, but trust me, it's hell. So much so that the after the fires, the insurance commissioner insisted that insurance companies pay out 100% of the policy allotment. Farmer's eventually did this, so we didn't have to keep collecting receipts and we put a good amount of that money away. Good thing we did, because it turns out we need it.
If you've got good insurance, and they cooperate by paying out enough money from your contents category, put it away. A problem we've heard from a lot of our neighbors that is the same with us is that everyone was under-insured. They've had to dip into the contents cash payout in order to pay for their rebuild. Is it fair? Hell no. But that's just how it is.
For us, a deciding factor of whether or not to rebuild came down to equity. Since we had only owned our house for a couple years, we didn't have very much equity in the home. In other words, the bank owned more than we did.
If the bank only needed to be paid back a little bit, we could have pocketed the balance and been better off with having a good chunk for a down payment. Since we didn't, it made the most sense to get a brand new house built. That new house will appraise for way more than the value of the original house. Essentially, if we had decided to walk away, it would have been equivalent to throwing money down the drain. It didn't make much financial sense.
Brand New Custom Home
How many opportunities do you get to design your own home? In California, not many if you're a couple of middle-class 30-somethings like us! We just couldn't pass up that opportunity. Picking out tiles and light fixtures gets me giddy. I can't wait to see it come together.
One of the biggest contributing factors to us rebuilding was honestly just wanting to. We didn't really know our neighbors before the fire, but afterwards we got together for dinners, reunited for holidays, and became Facebook friends. We have been involved in one another's lives despite being scattered all around the county.
The #CoffeyStrong community as a whole is also just a special group to be a part of. We have a common link. A shared experience that unites us. We can't wait to be back home, and watch our son play in the cul-de-sac surrounded by all our neighbors spending time on their new front porches.