Judge Rules Mortgage Lenders Must Disclose Insurance Settlement Funds

A New Jersey Superior Court judge ruled that mortgage lenders must disclose prior to selling a property through foreclosure whether they have the insurance settlement funds to repair any damages.

Judge Francis Hodgson Jr. said he issued the ruling in order to make the foreclosure process fair and open for those affected by Hurricane Sandy including bidders and property owners.

“By permitting the lender to hold the insurance proceeds secretly through the sale suppresses the fair market value, discourages bidders and allows the lender to potentially retain excess collateral, thereby prejudicing the borrower,” Hodgson stated in the Oct. 30th opinion.

Judge Hodgson’s ruling stems from a 2014 case involving a home that was in foreclosure prior to Hurricane Sandy. After the devastation of the storm, homeowner and plaintiff Nicole S. received $190,000 from her insurance company for the storm damage.

Even though she was in foreclosure, her lender, HSBC, allowed her to keep the claim settlement.  Under the terms of the mortgage, a lender could opt to apply the settlement money towards the remaining debt or use it toward repairs. According to court documents, HSBC opted to use the funds for repairs after the sale of the property. However, HSBC failed to disclose it was in possession of the insurance check and failed to reduce the price of the property, which allowed for an unfair advantage for the mortgage lender.

The judge said this would essentially put potential bidders at a significant disadvantage as they were unaware of true market value of the property and may not even bid because of the perceived cost of repairs.

What Does Homeowners Insurance Cover?

Homeowners insurance protects the homeowner against a variety of risks that come with home ownership. The benefits are designed to cover the structure, personal property, the cost of living arrangements in case of home damage, and certain other liabilities that may occur.

Homeowners might be surprised to find they don’t have total control of their insurance claim checks. Because mortgage holders have a financial interest in a home and are named on the insurance policy, the companies take steps to protect that interest. That includes holding onto a chunk of repair money until homeowners provide proof the damage is fixed.

Difficulties With Homeowners Insurance Settlement Claims

Many homeowners who have had to deal with the frustrating process of repairing a damaged home have most likely submitted a claim through their homeowners insurance. Some homeowners have encountered trouble accessing this insurance claim money needed for repairs.

In some cases, insurance companies issue insurance claim settlement checks payable to both the homeowner and the mortgage company. The check is sent to the homeowner, who endorses it and then sends it to the mortgage company to endorse and cash.

This process can leave the repairs in limbo, with contractors waiting on their portion of the funds before they complete necessary work.

If you have filed an insurance claim for property damage, you may be entitled to money from your mortgage company.

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.

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