Window to the Law: Disaster Guidance
Learn about how you can help your clients in the aftermath of a natural disaster and how to plan to protect your business against future events.
Window to the Law: Disaster Guidance: Transcript
When a natural disaster strikes, the first and most vital order of business is to tend to the welfare of those who have been affected. As a real estate professional, you’ll also be required to face a number of significant business considerations. In this video, I’ll give you tips on what you can do now in preparation for a natural disaster, and I’ll address steps you can take regarding pending transactions after a natural disaster strikes.
According to estimates by the US Labor Department, approximately 40% of businesses struck by a natural disaster never reopen their doors. Having a written plan of action ready to execute when disaster strikes is a critical component to your business’s survival. Here are a few key considerations:
With the help of an IT professional, develop a “Business Continuity Plan,” to address electronic data and systems recovery following a catastrophic event. This plan should address the minimization of systems downtime, engagement of a secure offsite backup facility, and identification of staff responsible for ensuring that critical IT is protected.
Make a plan for how payroll and other financial business needs will be handled during and following a major disaster. For example, it may be beneficial for to establish a secondary “emergency” monetary reserve in the event that your main banking facility is affected by the disaster.
Have a course of action for securing your physical facilities and critical hardware including portable devices such as laptops and mobile phones.
Finally, and most importantly, your disaster preparedness plan should address the physical safety of your staff and licensees. Consider implementing regular practice safety drills, having an outside consultant conduct a safety seminar, and implementing a phone tree for communicating safety alerts during an emergency.
So now that you’ve taken steps to prepare for a natural disaster, what should you do about your pending transactions after a disaster strikes?
First, reestablishing communication among the parties to a transaction is key following a disaster. Talk with your clients as soon as you are reasonably able. Let them know what is known – and what is not yet known – regarding the status of the transaction. In addition, buyers should communicate with their lending institutions to determine any required next steps regarding re-inspections or re-appraisals.
Buyers should also ask lenders about any additional costs and extended timeframes caused by the disaster.
Meanwhile, sellers should inquire about any new instructions regarding mortgage payments or mortgage forbearance immediately following the disaster.
When a property under contract has been damaged or destroyed, review the purchase agreement with your client and pay special attention to provisions addressing pre-closing property damage, “force majeure” or “Acts of God”, and changes to the closing date. Regardless of the terms of the agreement, the parties are always free to work together to amend the contract based on the new circumstances.
Separate from contractual considerations, be aware that your state’s laws may dictate which party – the seller or the buyer – bears the risk of loss during the pendency of a transaction and be sure to consult with your attorney if there is any ambiguity as to interpretation of the purchase agreement, a desire to amend the existing agreement, or a question about compliance with state law.
Depending on the extent of damage, your clients may want to file an insurance claim with their homeowners’ insurance and any relevant disaster-specific insurance policies they hold. No matter what, the homeowner should document all damages in writing, photos, and video as soon as safely possible following the disaster, and should keep records of everything spent on repairs and replacements.
Homeowners who have experienced property damage may also be able to take advantage of disaster aid services such as FEMA grants, Small Business Administration loans, and FHA funding to help with the costs of repair and rebuilding.
Nobody on earth is immune from the wrath of Mother Nature. We are all in this together. Be safe – and be prepared.
As always, thank you for watching Window to the Law.