Homeowners may find that lenders will use insurance, which was originally thought to be for rebuilding, to pay off their mortgage instead. It's not personal; it's a way for lenders to protect their money by controlling risk.

Part 1 How to advocate for your Forced Mortgage Payoff duplication of benefits waiver.

I will be updating this information for 2025. I have noticed that several states still do not understand the 2019 rules and federal policies. If your mortgage lender or broker has taken your insurance money and applied it to pay off your mortgage, it is out of your control and is called a forced mortgage payoff. This is reimbursable if you qualify for HUD CDBG-DR, which your state's executive branch of government controls.

If you have received a letter from your bank about applying your insurance money to your mortgage without consulting you about rebuilding and creating a schedule of payments, please share that letter with me. I can then research your state’s government to ensure they are following HUD CDBG-DR policy correctly. Currently, I have identified three states that do not have action plans reflecting the 2019 clarification of a forced mortgage payoff.

TIP: Do not agree to apply the money to pay off or pay down your mortgage. Do not agree to a plan that the mortgage handler provides if it doesn't include all of your insurance funds for rebuilding or repairing your disaster-damaged home. Never sign a release for the check to exclusive bank control.

That insurance money is for your family to rebuild. At times, mortgage handlers will see that you are at risk of default on the loan. This is a federal policy that allows mortgage lenders, under Fannie Mae and Freddie Mac policies, to control these funds. You will find the wording in your mortgage paperwork. It's part of a 700+ page federal policy and might be found by looking for keywords like "Risk of Ownership Change" (that's lender speak for loan default).

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