Homeowners May Have to Fight for Insurance Claim Funds

A homeowners insurance policy is a basic requirement of getting a mortgage.This insurance benefits both the buyer and the lender, as both have an interest in getting the property repaired in case of damage.

However, some buyers find themselves in a pickle when their mortgage company fails to release the very insurance funds needed to make necessary repairs.

Generally, when an insurance company issues a claim check for a homeowners insurance claim, that check is payable to both the homeowner and the mortgage company. That requires one party to endorse the check before the other party can use it.

By the terms of standard mortgage agreements, it’s the homeowner who has to endorse the check over to the mortgage company, which then deposits it and holds on to the insurance claim funds.

Mortgage companies include these terms in their agreements to protect their financial interests. The terms prevent a borrower from taking their claim check without making the necessary repairs to the property, which would leave the mortgage company with a less valuable piece of collateral.

These provisions may also apply to checks issued for repairs to any part of the property, not just checks for repairs to the house itself – sometimes referred to as “Coverage A” checks. Whether non-Coverage A checks are subject to the same restrictions may vary, depending on the terms of the particular insurance policy.

How long until the mortgage company releases the funds to the homeowner?

Individual mortgage terms vary, but by the terms of the California standard mortgage, the lender has the right to hold on to the funds during the repair and restoration period. The lender may disburse funds in a series of payments as the work is completed, or it may pay the funds all at once.

That can make repairs very difficult for the homeowner, who may have to front the cost of repairs and then wait for the lender to release the insurance claim funds. Typically, a contractor won’t begin a repair job without first receiving at least a partial payment of the value of the contract.

Most mortgage companies understand it’s in their own interest to get their collateral repaired, and if they hang on to insurance claim money too tightly, that repair work often doesn’t get done. One common practice is to release the funds in thirds – one-third up front to start the work, one-third upon an inspection verifying the work is half done, and one-third upon completion of the work.

What happens if the insurance company withholds claim funds?

If a mortgage company improperly withholds insurance claim funds when they are needed to make the necessary repairs, that company may be in violation of their own policy’s implied covenant of good faith and fair dealing.

Insurance attorneys are the best source of advice for what to do in that case. A mortgage company that makes a habit of withholding funds from its lenders may be exposing itself to an individual or class action lawsuit.

Join a Free Insurance Property Claim Class Action Lawsuit Investigation

If you have experienced difficulty recovering insurance property claim money from your mortgage company, you may have a legal claim. Submit your information now for a free case evaluation. If you qualify, a lawyer will contact you to discuss the details of your case.

Get a Free Case Evaluation Now