The Dynamics of Mortgage Companies and Insurance Claims
- Maria Shalack
- Jul 31, 2023
- 4 min read
Your mortgage company, otherwise known as your lienholder, holds a vested interest in your property. As a result, in the event of an insurance claim, they are typically listed as a named payee on the check. This happens because your outstanding loan with them has inherently linked their financial interest with your property.
In layman's terms, they have a stake in ensuring that necessary repairs are carried out and that the property's value is maintained.
Mortgage Company Insurance Claim Check
Different mortgage companies have distinct guidelines for endorsing insurance checks. The parameters that inform these guidelines range from the amount of the check, the type of loss incurred (be it water, wind, or fire), and your standing with your mortgage payments.
As a general rule of thumb, many companies are inclined to endorse checks less than $40,000, provided you are current with your mortgage payments.
If you're behind on your mortgage payments, your mortgage company will be more vigilant. They aim to guarantee that the funds are used to restore the property rather than diverting them elsewhere.
Consequently, they may insist on hiring a contractor, irrespective of the claim amount. They would then disburse the funds incrementally, with checks often bearing the contractor's name to ensure direct payment for services rendered.
Furthermore, refinancing your mortgage can lead to changes in the handling of your insurance policy. It is essential to notify your insurance agent if you choose to refinance. Doing so can prevent issues such as the insurance claim payment being issued to the wrong mortgage company, a common occurrence that can further delay the process of releasing the funds.
Force-placed homeowners insurance is another element to consider. If you fail to secure or maintain adequate homeowners insurance, your lender may obtain insurance on their own accord to protect their interests. While this insurance will generally cover the structure of your home, it might not include personal property, personal liability, or additional living expenses. Plus, it can be pricier than insurance you could procure independently.
Finally, remember that term life insurance could provide a safety net by paying off your home in the event of your death. This coverage may be worth considering, particularly if you have a family or other dependents.
Navigating the dynamics between your mortgage company and insurance claims can be daunting. If you're encountering difficulties in having your claim money released by your mortgage company, don't hesitate to reach out for professional assistance.
Understanding your rights and obligations in this process is crucial in protecting your property and financial interests.
When an insurance company issues a check for property damage, the check is typically made out to you (the homeowner), your mortgage company, and your Public Adjuster or Attorney. This is because both of you have an insurable interest in the property. Here is how you can cash the check:
1. Get Your Mortgage Company's Endorsement: you'll need your mortgage company to endorse it. This may involve calling their loss draft department, getting the instructions and requirements, and sending the check to your mortgage company. In some cases, they ask you to endorse it first. Depending on whether the claim is monitored or not.
2. Endorse the Check: After the check is returned to you endorsed by the mortgage company, you can meet with your Public Adjuster or Attorney and disburse the funds. In most cases, you endorse the check to your representative, and they write you a check for the difference after the fee is deducted. Or you can obtain their signature and pay their fee.
Follow Your Lender's Procedures: Depending on the amount of the check and your lender's policies, the lender may either:
Endorse the check and return it to you, allowing you to deposit it into your bank account. This is more likely for smaller claims, up to $40,000.
Deposit the check into an escrow account, from which funds can be drawn for repair and rebuilding work. This is more likely for larger claims. The funds will be released in increments as you submit proof of completed work, such as contractor invoices and inspection reports.
Maintaining close communication with your mortgage and insurance companies throughout the process is key. Procedures can vary, so it's important to understand what your specific lender requires.
Remember, cashing an insurance check made payable to you and your mortgage company without the mortgage company's endorsement could be considered fraud. Always follow the appropriate procedures to ensure you use the insurance funds correctly. At A&H Public Adjusters, we assist you with this tedious and difficult process as a courtesy to our clients.
Leftover Money From a Home Insurance Claim
In the case of a home insurance claim, the insurance company will typically send you a check based on the repair estimate of the damages minus your deductible. The exact process can vary depending on the specifics of your policy, but here's a general idea of what could happen to any leftover money:
Repairs Cost Less Than Expected: If the repairs end up costing less than the amount the insurance company gave you, you may be able to keep the leftover money. You can also spend this money on other repairs needed regarding the claim, such as the pipes repair, buying a new AC unit or appliance that caused the leak, etc.
Depreciation Recovery: In some cases, the payout might include recoverable depreciation. This means the insurer initially pays only for the actual cash value (ACV) of the damaged item (which accounts for depreciation), but you can recover the depreciated amount once repairs are completed. If the actual repairs cost less than estimated, you may not be able to recover the full depreciation. It is important to consult with a professional, such as a Public Adjuster, before sending receipts to the insurance company. You do not want to send evidence of repairs below the amount needed to recover the depreciation.
Contractor's Bid and Actual Costs: If your contractor's bid was the basis for the payout, and the work was completed for less, the insurance company may want the leftover money returned. They based their payout on the estimate, not the actual costs.
Remember, all these scenarios depend largely on your specific policy's rules, the laws in your state, and the individual claim's circumstances. It's essential to read your policy carefully and consult with a public adjuster or a legal professional if you have any doubts or questions.
Lastly, it's important, to be honest and transparent throughout the process, as any attempts to deliberately overestimate costs or keep leftover funds that should be returned could be seen as insurance fraud.
