Understanding the Basics After Receiving a Property Insurance Check
If your insurance company issued a check for property damage, you may have noticed something surprising: the check includes the mortgage company’s name alongside yours. That’s not a mistake. It’s a standard part of how lenders protect their financial interest in your home.
Let’s break it all down. We’ll explain what it means, why it happens, and what you need to do next.
Your Mortgage Company Has a Stake in the Property
When you signed your mortgage, you agreed to maintain homeowners’ insurance to protect your home and your lender’s interest. If a fire, storm, or other disaster damages your home, the insurance proceeds protect the lender just as much as you. Therefore, the insurance company names the mortgage company as an additional payee.
What Your Mortgage Company Cannot Legally Do
Mortgage companies frequently violate the law when handling insurance proceeds.
Here are illegal practices lenders often engage in:
- Refusing to Communicate Requirements: Your lender cannot hold your funds indefinitely without clearly explaining what documents or conditions you must satisfy to receive your money.
- Imposing Unreasonable or Arbitrary Requirements: While mortgage companies can request reasonable documentation like contractor estimates and invoices, they cannot create impossible hoops for you to jump through.
- Ignoring Your Requests: Once you’ve submitted all required documentation and formally requested release of funds, your mortgage company cannot simply go silent or continue delaying without explanation.
- Holding Funds After Repairs Are Complete: If you’ve completed repairs and provided proof of payment to contractors, your lender has no legal justification to continue withholding your insurance money.
- Failing to Release Partial Payments: For large claims, you’re typically entitled to receive funds in installments as work progresses. Your mortgage company cannot refuse to release partial payments when you’ve met the requirements for each draw.
How the Mortgage Clause Works
Most insurance policies include a mortgagee clause stating that the insurance company must name the mortgage holder on the check. This clause also allows the mortgage company to control how the funds are used, especially when the damage is significant.
If you suffer property damage, your insurance provider will issue a check to you and your mortgage company. The mortgage company then holds the funds in escrow and releases them in stages, typically based on inspections or proof of completed repairs.
Understanding the Mortgagee Clause in Detail
The mortgagee clause is a standard provision in homeowners’ insurance policies that designates your mortgage lender as a “loss payee.”
This means:
- For Minor Claims: Claims under $5,000 to $10,000 (varies by lender) may be paid directly to you without lender involvement.
- For Major Claims: Larger claims require the mortgage company’s endorsement, and funds are typically held in a controlled disbursement account.
- Loss Payable vs. Mortgagee: While similar, these terms have different legal implications. A mortgagee clause provides the lender with independent rights under your policy, while a loss payable clause is simpler but offers less protection to the lender.
What If Your Mortgage Is Paid Off?
If you’ve fully paid your mortgage, the insurance company will only issue the check in your name. You can deposit and use the funds without lender approval. However, even if no mortgage remains, it’s essential to document all repairs and retain receipts in case of future claims.
How to Endorse and Process a Check with the Mortgage Company
If your check includes your mortgage company, you will likely need to follow these steps to access the funds:
1. Contact the Mortgage Company Immediately
Contact your lender’s loss draft department, which handles insurance claims. They will provide specific instructions and required documentation.
2. Endorse the Check Properly
You must sign the check and forward it to the lender for co-endorsement. Some mortgage companies require the check to be mailed or dropped off at a branch.
3. Submit Required Paperwork
Most lenders will ask for:
- A copy of the insurance adjuster’s report
- A repair estimate or a contractor’s proposal
- A signed contractor agreement
- Photos of the damage
- A W-9 form from your contractor
4. Request a Disbursement Plan
Depending on the amount, the lender may hold the funds in escrow and release them in portions:
- First disbursement: Typically, 33–50% up front to begin work
- Second disbursement: After partial inspection of completed repairs
- Final disbursement: Once all work is complete and verified
What If the Mortgage Company Won’t Release the Funds?
Understanding the most common reasons lenders withhold insurance proceeds can help homeowners avoid preventable delays:
- Incomplete Documentation: The mortgage servicer usually requires a complete claim package, including the insurance check, adjuster’s report, contractor estimates, and a signed W-9 form.
- Delinquent Loan Status: The lender may retain the full amount if the borrower is behind on mortgage payments or in foreclosure.
- Major Property Damage: In cases involving substantial damage, the mortgage company may want to inspect the property and release funds in installments as repairs are completed.
- No Proof of Repairs: Lenders need assurance that repairs are being made. Without invoices, photos, or permits, they may withhold disbursements.
- Internal Delays: Some lenders operate inefficiently. Lost paperwork, understaffed departments, or outdated procedures can delay the process.
Tips for Smoother Processing
Contact your mortgage company as soon as you file an insurance claim. Ask about their specific requirements, processing times, and documentation needs. Having this information upfront can prevent delays later.
Document everything related to the damage and repairs:
- Photos of damage before and after repairs
- All estimates and contracts
- Receipts for materials and labor
- Communication with insurance and mortgage companies
Understand Your Policy: Review your mortgage documents to understand your lender’s specific requirements regarding insurance claims. Some companies have more streamlined processes than others.
Work with Experienced Contractors: Select contractors who are familiar with insurance work and the requirements of mortgage companies. They can often help navigate the documentation process and may be willing to work with delayed payment schedules.
How an Attorney Helps Despite the Mortgage Company’s Involvement
While our lawyers cannot eliminate the mortgage company from the process, experienced legal representation provides crucial advantages:
- Accelerating the Process: Mortgage companies often respond faster when an attorney is involved. They know lawyers understand their legal obligations and won’t tolerate illegal delays.
- Maximizing Your Settlement: Your attorney ensures you receive the full insurance payment you’re entitled to, which means more money in the escrow account for repairs.
- Protecting Against Fund Diversion: Lawyers ensure the insurance company sends the check directly to you and your mortgage company, not just to the lender.
- Negotiating Disbursement Terms: An attorney can negotiate with your mortgage company for more favorable disbursement schedules or larger initial payments.
- Legal Action When Necessary: If your mortgage company violates the law by unreasonably withholding funds, your attorney can file suit to force release and recover damages.
- Handling Multiple Parties: When you’re dealing with both an insurance company and a mortgage company, having legal representation ensures nothing falls through the cracks.
Insurance Claim Lawyers Understand Mortgage and Insurance Contracts
Most homeowners are unfamiliar with the fine print in their mortgage agreements and insurance policies. Our expert Florida insurance claim lawyers understand the legal obligations of all parties: you, the mortgage lender, and the insurance company, and can ensure everyone complies with the terms.
The Williams Law Association, P.A. Advantage
At Williams Law Association, P.A., we bring specialized expertise to property insurance claims involving mortgage companies:
- Deep Knowledge of Florida Insurance Law: We understand the specific statutes, regulations, and case law that govern insurance claims and mortgage company obligations in Florida.
- Experience with All Major Mortgage Servicers: We’ve dealt with every primary mortgage servicer and know their specific policies, tactics, and vulnerabilities.
- Track Record of Success: We’ve helped hundreds of Florida homeowners recover insurance proceeds that mortgage companies were improperly withholding.
- Comprehensive Approach: We handle both the insurance claim to maximize your settlement and the mortgage company issues to ensure prompt fund release.
Take Control of Your Insurance Funds
Although including a mortgage company on an insurance claim check may feel frustrating, it’s part of the legal framework designed to protect both the homeowner and the lender. Understanding the process and communicating effectively can minimize delays and restore your home quickly and correctly.
If you’re unsure about how to proceed or encounter any difficulties, consider contacting our expert Florida insurance claim lawyers, who can provide expert guidance and help you get the repairs done as quickly as possible. Call us at 1-800-451-6786 or fill out our online contact form.