If you have a mortgage, and your home has suffered severe damage or been destroyed, some or all of the payment checks from your insurance company will be made payable jointly to BOTH you and your mortgage company.
Until your mortgage company releases its claim on some or all of the funds, they will sit in your mortgage company’s account. This means that before you can begin to rebuild, you must first understand the process of how to get your mortgage lender to let go of your insurance proceeds (see sample letter from a lender to homeowner).
You will be required to endorse/sign the check first, and your mortgage company will deposit the money into its own account, and then release the money to you later, once you have started the process of rebuilding your home
The goal of this tip sheet is to give you strategies to get control of the insurance money as soon as possible. We will also provide information on how get your lender to release insurance proceeds when proceeds are greater than the amount you owe on your loan. You will also find out how to get paid interest on proceed funds while they are being held by your lender.
IMPORTANT NOTE: The information provided below assumes that the reader has standard California mortgage documents. You may not live in California-so read your specific documents carefully!
“Improvements” are pretty much everything on the land that is not organic (dirt, grass, trees, bushes). “Improvements” include your house, gazebo, patio, fence, and driveway.
Q: Why can’t I just deposit and use my insurance checks? Why does it have to go through my mortgage company first when I paid the insurance premiums?
When you borrowed money to buy your home, you agreed that one way the mortgage company would be protected would be that the mortgage company would be co-insured, right along with you, for any harm to your “improvements.”
This happens because your lender has a financial interest in the property that your insurer will honor/protect
Your mortgage documents are set up to protect the mortgage company if you take your insurance rebuild money and disappear. In other words, your property and the house are the collateral for the loan; so if you cashed the insurance checks but did not rebuild, then the mortgage company would have a problem. The loan and insurance documents set up a system to prevent you from doing that.
Unless and until you get your mortgage company to agree to something different (in writing), every Coverage A check you get, and maybe some of your other coverage checks, will say something like: “Pay to the order of Jane Doe and Jane Doe’s Mortgage Company.”
Property Insurance. …. If Borrower obtains any form of insurance coverage, not otherwise required by Lender, for damage to, or destruction of, the Property, such policy shall include a standard mortgage clause and shall name Lender as mortgagee and/or as an additional loss payee . . .
A good rule of thumb is to assume that the mortgage company could claim a right to be treated as a co-insured on insurance coverage for those things that are or must stay on the property when the house is sold – plants, grass, the house, the fence, the driveway, etc.
Q: If the insurance checks total more than my mortgage, does the lender get to keep more money than the remaining amount I owe them on my mortgage?
A: The mortgage company should not be able to keep insurance proceeds in excess of the remaining amount of the loan secured by the mortgage. Also in paragraph 5 from the standard California mortgage, you only agree “… to generally assign rights to insurance proceeds to the holder of the Note up to the amount of the outstanding loan balance.” Indeed, for this reason, some mortgage companies also have a written policy saying the company only holds money up to the amount of the outstanding loan balance .
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