Insurance company issued a two-party check for hurricane damage repairs but my mortgage handler is holding the money from me. Why are they doing this?

FAQ#: 455 published 12-30-2021

After a major disaster like hurricane Laura, Delta and Ida we always look to our insurance companies for a quick response and a very accurate damage assessment. The time between insurance inspection and the release of payment typically falls within 30 to 90 days of the disaster. 

What you didn't expect was your mortgage handler holding the insurance funds without really telling you many details as to why. 

We have two articles that cover this issue and other issues related to mortgage handlers and why they hold your insurance payout. In some cases they simply don't allow you access to the funds until they see a full reconstruction, repair or rebuilding plan with a timeline. Other times they will apply the funds to your mortgage protecting their investment. It's important that you communicate in writing with your mortgage handler and not over the phone or in person. 

Tips: To get your mortgage handler on your side you should take the information provided by your insurance adjuster, FEMA inspector and State inspector. If you are going to hire a contractor to do the repairs have the contractor make an inspection as well. Combine all the information, create a materials list, labor timeline and estimated completion dates. 

If the project is going to take more than a few weeks you'll want to propose a payment schedule to keep the work moving along. Your mortgage handler will work with you to release funds as progress is made with your reconstruction. 

It is a known fact that your mortgage handler has total policy rights under first lien holder rule to make good use of your insurance payout even if it's not in your best interest as a homeowner. The Freddie Mac and Fannie Mae policy which most lenders use allows the lenders to protect their investment first in all cases. 

When you speak with your mortgage handler and they tell you they will not release the total funds to you it is at that time you will need to communicate in writing everything. If your home is substantially damaged (50% or more of market value) your mortgage handler may opt to pay off your mortgage and give you whatever remains. You should not voluntarily offer your insurance money to pay off your mortgage. You will qualify for reimbursement under grant programs if the mortgage handler makes a clear statement that they are forcing you to pay off the mortgage to protect their interest. Most mortgage handlers will not offer this information to you but it's clearly printed in their SOP and in federal policy manuals. You will need to ask them for a letter of "Forced Mortgage Payoff" before you sign anything if that is the mortgage handlers final discission. Be careful about the wording of the letter you receive from your mortgage handler, it must clearly state you had no choice and were forced to give up your insurance money and pay off the remaining mortgage balance because the mortgage handler felt you were not or could not repair or rebuild the home to it's pre-disaster value or current market value if greater than the mortgage balance. 

 

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