Policyholder Question on How to Get Mortgage Company to Release Funds from Property Insurance Claim

by Charles R. Tutwiler on 10/30/2013

This question was originally answered by public adjuster Dick Tutwiler for United Policyholders “Ask an Expert” where he contributes his experience to helping property owners who have insurance claim questions.

Q. If the mortgage company holds on to my insurance repair check and delays my ability to rebuild my damaged home by hanging onto my insurance check, is there an agency that regulates mortgage companies that I can file a complaint with? Policyholder from Ocala, Florida

A. It makes little sense for mortgage companies to withhold funds to make the necessary repairs as authorized by the insurance company. By doing this, it devalues the property they are holding the mortgage on. There is however an issue where the mortgage company will probably tell you where they have been burned before by people taking the insurance money and not making the repairs or pocketing some of the repair money and doing sub standard repairs.

Our experience has been that if you send your mortgage company a copy of a signed repair contract detailing either work that was already paid for or which will be done by a licensed contractor, they will release draws to you . Typically the draw will be in thirds as work is completed, with the final payment once a certificate of occupancy is issued by the building department. If you are dealing with a lender who wants to call the mortgage or apply all of the insurance proceeds to the outstanding balance, you need to check with a real estate lawyer or an attorney who deals with mortgages and banks who can give you advice based on the law in your state.

In regards to lodging a complaint, you can try the officials at the state level such as the Florida Department of Financial Regulation that oversees banking and the mortgage business. Also get the Office of Insurance Regulation (aka the insurance commissioner’s office) involved. It does no one any good to have properties in disrepair and we have found that with a little push most mortgage holders will work with you to restore the property. Also read your insurance policy. Some have provisions that if the loss is under a certain dollar amount they will issue a check directly to you without including the mortgage company’s name on the check. Keep pushing and work out a plan that fits you, your contractor, and the lender.

If you have questions regarding any property insurance claim related issues please call 800.321.4488 or contact us to submit a question to one of our public adjuster or insurance claim experts.

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I have a VA loan through TD Bank whose main office is in Lewiston, Maine. I live in Florida. I retained a public adjuster to help me deal with my insurance company(Progressive). I suffered severe damage from Hurricane Michael on 10/10/18. Do you think I will have any problems with the bank releasing insurance proceeds directly to me seeing as it could be an inconvenience for the bank with me living so far away? Also, what records will the insurance company require if I do some of the work myself and have others help me?

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Thank you for your question. The involvement of the mortgage holder post loss comes up on a frequent basis. To my knowledge there are no rules that are codified on the handing of payments from insurance companies that list the mortgage holder on the check. Each bank or mortage company has their own set of in house rules on how they deal with this, some on a case by case basis. Having said that if there is a mortgage holder listed on the policy the insurance company will have to include their name on the check unless it is waived. Some insurance policies may waive naming a mortgage company if the loss is relatively small i.e. under $10k to $15k. In your case as the loss was "severe" the insurance company will put the mortgage holder on the check. In that case you will need to communicate with the mortgage to find out how they will handle disbursement of the funds. Generally if you have a contract with a construction company you will be ask to forward it to your mortgage company along with the check from the insurance carrier. Typically unless there are obvious red flags the practice of most mortgage companies is to release funds in draws. One thrid to get started, another thrid at mid point of the construction work, and the final one thrid when the job is completed and a C O (certificated of occupancy is issued by the local building department. It has been my experience that inspections will be made by someone from the bank or mortgage company as work progress. Processing payments to policy holders who due the work themselves can be complicated as the insurance company and the mortgage holder may ask for receipts etc. Your mortgage holder will want to make sure the security (your property) they loaned you the money is protected by it being restored to its pre loss condition. Finally the general rule is that you cannot profit from your loss by doing the work your self. Most carriers subject to an agreement before you or your friends do the work will allow you to bill then for 10% overhead of the 10% profit/10% overhead scheme. Also in Florida a mortgage holder can apply the full settlement to the balance of the mortgage. This is very seldom done, generally only if you are violating your mortgage contract by not making payments. But if this comes up you need to see a lawyer and have him or her throughly go through your mortgage contract.

Here is a different situation. My sister had her house nearly destroyed by a large pine tree from someone else's yard that smashed into her roof after (the tree) being hit by lightning during a wind-rain winter storm. It was a freak accident insofar as nobody else in the neighbourhood was seriously affected. So, in this case, it was a natural disaster but the insurer is probably NOT dealing with other large claims from other clients. As the roof was smashed, shaking the foundations, and it had rained all over the house, it was/is not safe to live in. She had only had the house four months. Insurance, apparently, was relatively efficient. The claim was handled and released to the mortgage company in about six weeks. The mortgage company (btw, apparently, not the company they had contracted with for the mortgage, but it is not clear to me exactly when the mortgage was sold) has sat on it for two months and gives her the run around about it. The contractor naturally had to do work up front (three months ago now) to secure the structure and patch the roof but has not seen a dime. He won't proceed. Mortgage company won't say anything substantive. (State is NC btw). I know you say it is in the mortgage company's interests to make efficient repairs on the property, and that might NORMALLY be true. But what is going on here? Are they just sitting on the money, collecting interest? Or, since they are basically speculators, is the company that probably bought the mortgage when the housing market was really hot probably regretting its investment and buying its time? Maybe they are trying to resell it or want to force my sister and her husband to refinance? They are totally current on mortgage, making payments for absolutely nothing. In any case, it is in NC, do you have any advice or analysis as to why/how this would happen?

We are going through something very similar. We have been paid a very small amount of money from the mortgage and have covered large amounts of repairs after our mortgage was sold in the middle of the process. Although the new company has paid out small amounts the will not release 50% remaining funds even though their inspectors have us at 75% now and we have been at 50% for over a year. There seems to be continual delay tactics and an unwillness to release the funds needed to continue. We are current on our mortgage although we cannot live in the home yet. I believe this is happening to alot of people. I would love to speak with you Thomas.

Policyholder Question on How to Get Mortgage Company to Release Funds from Property Insurance Claim

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