When a homeowner files an insurance claim, the last thing they expect is having to include their mortgage holder on the check. But this is usually the case and cause settlement delays and confusion depending on how the mortgage holder processes the settlement. The following is a related insurance claim question we answered submitted by a policyholder.

Q. I have a VA loan through TD Bank whose main office is in Lewiston, Maine. I live in Florida and retained a public adjuster to help me deal with my insurance claim. 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?

A. 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 mortgage 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, the loss was "severe" so the insurance company will put the mortgage holder on the check. In that case it’s best to communicate with the mortgage holder in advance to find out how they will handle disbursement of the funds. Another twist is that 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 thoroughly go through your mortgage contract.

In regard to repair work reimbursement. Generally, if you have a contract with a construction company you will be asked 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 the funds in draws. One third to get started, another third at midpoint of the construction work, and the final one third 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 the work progresses.

Processing payments to policyholders who do the work themselves can be complicated since 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 on 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 yourself. Most carriers are amenable to an agreement before you or your friends do the work will allow you to bill them for 10% overhead of the 10% profit.

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 insurance claim experts.