The ongoing Los Angeles County wildfires that began on January 7, 2025 are shaping up to be one of the most catastrophic natural disasters in California – and, likely, U.S. – history. The fires have damaged or destroyed more than 16,000 structures in communities across greater Los Angeles, including in the Altadena, Eaton, Pacific Palisades, and Sylmar neighborhoods. In the wake of this destruction, many affected residents are grappling with the loss of their properties and the associated financial implications. This alert addresses key mortgage-related issues that may arise in connection with this crisis.
For additional wildfire resources, including no-fee assistance for individuals, visit our website.
What to know about your residential mortgage payments
A common question asked by affected residential property owners is whether they must repay their mortgage if their home was destroyed by the wildfires. Unfortunately, the answer is yes: mortgage payments are still due even if the property structure was destroyed. However, those impacted by the fires might be eligible for reduced or suspended payments through a mortgage forbearance plan with their mortgage servicer or lender.
During natural disasters, servicers and lenders typically offer mortgage forbearance programs that allow property owners to temporarily pause or reduce their mortgage payments for a set period, usually up to 12 months. Mortgage servicers are required to offer forbearance on loans backed by Fannie Mae and Freddie Mac. Loans backed by the Federal Housing Administration (FHA) and the Department of Veterans Affairs have similar guidance. Loans that do not have federal backing may also be eligible for forbearance, depending on whether the mortgage servicer or lender offers such relief.
During the forbearance period, which is often doled out in three- or six-month increments, property owners generally do not incur late fees and are not subject to foreclosure or other legal proceedings. They do, however, still owe the full amount of the loan, including accumulated interest, and are required to resume payments after the forbearance period ends. Any reduced or suspended payments are typically repaid later during the term of the loan in accordance with a repayment plan.
Mortgage forbearance
On January 18, 2025, Governor Gavin Newsom announced that the state had been working with major lenders to offer mortgage relief to wildfire victims. As of January 30, over 400 financial institutions have committed to provide such relief to qualified customers.1 The mortgage relief will consist of the following general protections:
- A 90-day grace period on mortgage payments, streamlined processes for requesting initial relief without submitting forms or documents, payment options that do not require immediate repayment of unpaid amounts at the end of the forbearance period (i.e., no balloon payments), and the opportunity for additional relief;
- No negative credit reporting of late payments of forborne amounts;
- Waiver of mortgage-related late fees during the forbearance period; and
- At least 60 days of protection from new foreclosures or evictions.
Property owners carrying mortgages with these institutions must contact their servicers to determine eligibility and request this relief.
Federally backed mortgages are also eligible for disaster relief. Fannie Mae and Freddie Mac have each unveiled disaster relief options for borrowers affected by the fires, offering up to 12 months of forbearance. Information on these programs, as well as other resources for all residential property owners and renters, can be located at:
Similarly, following former President Biden’s January 9, 2025 Major Disaster Declaration for California, the U.S. Department of Housing and Urban Development (HUD) put in place a 90-day moratorium on foreclosures of FHA-insured loans as of the declaration date, with a 90-day automatic extension for Home Equity Conversion Mortgages. Further, the declaration also made available the FHA’s section 203(h) program, which allows individuals whose homes were destroyed or severely damaged to obtain FHA-insured mortgages to finance the purchase or reconstruction of a new principal residence.
To learn more about disaster relief options for FHA homeowners, visit the FHA Disaster Relief site.
Property owners with mortgages through institutions not listed above should likewise contact their servicers to discuss mortgage relief options. Most lenders and servicers are inclined to work with borrowers struggling to make their mortgage payments. However, keep in mind that these institutions are not legally mandated to offer forbearance or loan modification options if the underlying loan is not federally backed. However, other state laws, such as the Homeowner Bill of Rights, might protect some borrowers in these circumstances. Under the Homeowner Bill of Rights, loan servicers must attempt to contact homeowners at least 30 days before initiating foreclosure to discuss foreclosure-prevention alternatives, such as loan modification or forbearance, refinancing, selling the property, or a deed in lieu of foreclosure (i.e., transferring the property back to the lender). Property owners are advised to communicate with their lenders and servicers as soon as practicable to discuss these matters and follow up in writing on anything that is discussed.
Important considerations for mortgage forbearance
a. Interest accrual
Before entering a forbearance plan, property owners should be aware that their interest will continue to accrue during the forbearance period and must be repaid, along with the deferred payments, after the forbearance period ends. Depending on the length of the forbearance, this could result in unsustainable mortgage payments and overwhelming financial burdens for those whose properties have been damaged or destroyed. To avoid this outcome, those who can afford to keep making payments should do so. Those who cannot should discuss repayment options and a possible loan modification (discussed below) with their servicer.
b. Repayment options
Mortgage servicers typically offer some or all of the following repayment options after the forbearance period ends:
Reinstatement: the property owner makes a lump-sum payment by a deadline to cover all missed payments and accrued interest. This is usually the fastest option to bring a mortgage current.
Repayment plan: the property owner can spread the missed payments over a set period by adding a portion of the overdue amount to their regular monthly payments until the balance is repaid.
Payment deferral: the property owner tacks the missed payments to the end of the loan term to be paid after the mortgage is originally set to be paid off or the home is sold.
Loan modification: if the property owner cannot keep up with regular payments after the forbearance period ends, they can ask their mortgage servicer to change the terms of the mortgage to make payments more manageable (e.g., by reducing the interest rate or extending the loan term).
Small Business Administration loans
Los Angeles County residents who sustained damage to their homes, businesses, or personal property as a result of the wildfires may be eligible for a Small Business Administration (SBA) loan. The loans are intended to cover losses not fully covered by insurance or other sources. Business ownership is not a requirement for eligibility; homeowners, renters, and personal property owners may also qualify for assistance. The following SBA loans are available:
Home Disaster Loan: provides (i) homeowners with up to $500,000 to replace or repair their primary residence; and (ii) renters and homeowners with up to $100,000 to replace or repair their damaged or destroyed personal property (such as clothing, furniture, cars, and appliances).
Under this program, secondary homes and vacation properties are ineligible for assistance. However, qualified rental properties may be eligible for assistance under SBA’s Business Physical Disaster Loan program.
Business Physical Disaster Loan: provides businesses of any size and most non-profit organizations with up to $2 million to repair or replace uninsured damage to property owned by the business, including real property, machinery, equipment, inventory, supplies, fixtures, and leasehold improvements.
- Application deadline: March 10, 2025
Economic Injury Disaster Loan: provides small businesses and most private, non-profit organizations with working capital up to $2 million to help meet necessary and ordinary financial obligations that cannot be met as a direct result of the disaster. These loans are intended to assist through the disaster recovery period and are only available when SBA determines the recipient is unable to obtain credit elsewhere.
- Application deadline: October 8, 2025
Interested applicants may apply online.
How your mortgage may impact insurance payout
a. Your lender may have control over your payment
Mortgage-carrying property owners should expect to see that their insurance checks for repairs name their mortgage lender as a co-payee. This is because lenders usually will condition their loan on the property owner naming the lender as a co-insured under their policy for structural damage. This protects the lender’s interest in the collateral supporting the loan by ensuring the insurance funds are used to repair or rebuild after a catastrophic loss of the collateral. Note, however, that the lender’s interests would not extend to insurance payments reserved exclusively for property owners, such as those for additional living expenses (ALE) or personal belongings. Thus, property owners should ensure that the checks on which their lenders are named are for repairs only and do not include ALE or personal belongings payments.
When an insurance company begins to issue the repair and rebuild checks, it will usually mail the checks directly to the property owner. The property owner must then endorse each check and mail it to the lender for its co-endorsement. In most circumstances, the lender will then issue to the property owner an advance from the proceeds – usually one-third of the total settlement amount – and deposit the balance in an escrow account. Generally speaking, the disposition of the remaining proceeds held in escrow will be dictated by the property owner’s decision to either rebuild/repair the destroyed property or pay off the mortgage (with the balance of any excess funds going to the property owner). To ensure the lender releases the proceeds without undue delay, the property owner should carefully follow the lender’s specific check endorsement and payout procedures.
Keep in mind, however, that the above applies only if the loan is in good standing at the time of the loss. If the loan is in default, the mortgage documents usually will give the lender more leeway to decide what to do with the insurance proceeds, namely, to either rebuild or use the funds to pay off the loan. You should review the terms of your mortgage documents to understand how these funds can be utilized by the lender.
b. If you were uninsured/underinsured, your lender might have placed its own policy on the property
As stated above, most mortgages require property owners to maintain a certain amount of insurance coverage on the property. If the property owner allows this coverage to lapse or if the coverage is not renewed or deemed insufficient, their lender or mortgage servicer may place a policy on the property to an amount it deems necessary to cover its interests. This is known as force-placed, creditor-placed, lender-placed, or collateral protection insurance.
With lender-placed insurance, the lender purchases the policy on behalf of the property owner and pays the premium upfront. The lender then adds the premium to the property owner’s monthly mortgage payment. Lender-placed insurance is usually much more expensive than other policies because providers are required to offer coverage regardless of the property’s condition or location, including high-risk areas where other insurance may not be available. Nevertheless, lender-placed policies typically offer less coverage for the price compared to other plans. The policies usually cover only the lender’s interest in the property, which may not adequately protect the property in the event of a full or even partial loss. These policies are also likely to omit coverages that protect the property owner, such as personal property and liability coverage.
Lender-placed policies are uncommon, and a property owner would most likely know if one was placed on their property. Lenders cannot place these policies unless they first issue a 45-day notice to the property owner, followed by a 15-day reminder. If the property owner has not secured adequate coverage after this period, the lender may proceed with placing the policy. However, these types of policies are cancellable at any point (pre-damage) so long as the property owner can provide proof of adequate insurance. In that event, the lender-placed policy would be terminated and any overlap in premiums would be refunded to the property owner.
Additional resources
The Department of Financial Protection & Innovation has compiled helpful resources for property owners seeking financial assistance due to the wildfires.
- Qualified customers are those individuals whose structures located in the following Los Angeles County ZIP codes were damaged or destroyed due to the wildfires: 90019, 90041, 90049, 90066, 90265, 90272, 90290, 90402, 91001, 91104, 91106, 91107, and 93536.
In-depth 2025-047
