When you get an insurance settlement after a fire, can you use the money to buy a new home instead of rebuild?

Question

My son's home caught on fire 7 days after he and his wife purchased it. No one was in it. They were in the process of painting and fixing it up before they moved in. They believe they will be offered a settlement by their insurance company. Do they have to use it to rebuild, or can they demolish the burned house and sell the lot and then buy another house somewhere else?

Answer 1

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Answer 2

Yes, but you don't get the full replacement value - you get the depreciated, actual cash value, unless you actually rebuild.

Answer 3

They can do anything they want with the money.

Answer 4

If they owned the house outright, they can do whatever they want.  If the house was mortgaged, it was the lender's security, and the lender absolutely has a say in the matter.  If the amount of the settlement is enough to pay off the mortgage, then they can sell the land, but as long as there's a mortgage, the bank dictates what happens.

Answer 5

The lender (if any) gets their money first.  Then he would be free to do what he wants.