Why is my Mortgage Company on my insurance claim's check?

When you have damages to your home or business, you fight with your insurance company to get the money you are entitled to under your policy.  Then you celebrate when that long-awaited claim's check arrives and you can finally do your repairs!  But wait, why is your mortgage company named on the check along with your name?!?!?!  Most home and business owners have a mortgage on their property, but most do not know how that affects their insurance claim payments.  Now, the check must be endorsed by your mortgage company before you can deposit it.  This may feel like round two of this great claims fight, but knowing how to secure the endorsement can save you time and save you from frustration.

First, why is your mortgage company on the check?

When you insure your home or business and you have a mortgage on your property, your insurance company lists the bank on any and all claim's checks since the lender actually has an interest in part of your home until the loan is paid off.  Yup, your bank is your silent partner in your home! When a loss occurs, the financial institution has a right to know about the claim, collect the money and make sure it's used to repair the damage.  Otherwise, homeowners may be tempted to abscond with the insurance money and leave the mortgage company with a damaged property.

Second, some good news and some bad news. 

Good news: When a claim's check is below a certain amount established by your mortgage company, such as $10,000 or less, the lender will usually endorse the check without the need to monitor your repairs nor require documentation to be submitted throughout the process (as long as you are current with your mortgage payments).  You simply visit your bank or mail it to the lender for its endorsement (you do not endorse it until after it is returned to you and it is ready to be deposited into your bank account).  You will need to provide your claim's estimates and insurance documentation to the bank for its records.  You also may need to complete and sign a form stating you will use the money for repairs related to the claim.  If you have two loans with different mortgage companies, the second lender must also sign the check.   

Bad news: When your claim's check is above a certain amount established by your mortgage company, such as above $10,000, instead of endorsing the check, the lender will deposit it into its bank controlled escrow account.  Since many mortgage companies have different procedures for this process, you will need to contact the "loss draft department" of your mortgage company and ask what its procedure is.  After depositing your funds in its escrow account, the mortgage company will then monitor your repairs and request you to fill out a packet supporting such.  You will be provided with a portion of the funds to start the repairs and release the remainder in phases until construction is complete.  If your bank holds your funds while you perform your repairs, once the repairs are finished you receive any and all remaining funds held in escrow.

Third, the Packet.

After contacting the loss draft department, you will be mailed, emailed or directed where to download a copy of your mortgage company's loss draft packet.  After completing the packet and providing your lender the necessary paperwork, you will then be provided with the portion of the claim's check allowed by your bank so you can perform your repairs.  You will have to provide all invoices from the contractors you hire to your bank along the way until such work has been completed.  Some mortgage companies may request an inspection of the work to ensure it was performed and you may be required to pay for this inspection.  When you receive the packet, it usually lays out the steps and required processes you must do in order to obtain your insurance claim's payment from your lender. 

Fourth, other considerations.

On a positive note, if the repairs cost less than the amount estimated by your insurance company or than the amount held by your bank, you will be entitled to any and all amounts left over.  So, if you find a bargain when doing the repairs or decide to replace that damaged flooring with a cheaper alternative, you will be entitled to the savings, not your bank or your insurance company.  

Fifth, if you have a Insurance claim's payment with your mortgage company listed on it, or you have deposited your claim's check with your lender, and you are in need of assistance in this process, Middagh Law, P.L.L.C. may be able to assist you.  We encourage you to contact us by calling (786) 395-1148 or emailing Richard Middagh at richard@middaghlaw.com to discuss this or other claims matters you may have.