Why are my insurance repair checks made out to my mortgage lender?
Here’s the question…
“Can you please assist us with a problem with FIRST FRANKLIN?
Our refinance was done through them almost three years ago. We had over $25,000.00 worth of damages done to our home with the recent Hurricane Ike. We are having to replace our roof, entire fence, floor downstairs in family room, along with floor upstairs in hall, master BR and office.
The Insurance co. made the check out to myself, husband AND FIRST FRANKLIN. When we called them about signing the check, they wanted to have us sign the check BEFORE sending it to them so that they could deposit it into an “Escrow reserves account” and stated that they would only issue 50% of it to us via a check from FIRST FRANKLIN and after 90% of the work is completed, they would issue the other half AFTER we jump through hoops for them having an Inspector come out from there and approve the work.
The problem is that it is going to cost more than that to get started! After we received bids and estimates, we have found that we will be paying more to get these things done than what was allowed. The roof will cost close to $12,000.00, the fence will cost approx$5,000 – 6000, and the floors at least $3000. That doesn’t even include the other minor repairs. Most of the contractors want at least half down due to the increased cost of supplies.
Our insurance company had first sent the check with the incorrect mortgage company on it so after 10 days of sending it back to them and them sending another one out, we already have mold and mildew growing in the attic from the leaks, that can be smelled through the house as it comes from our vents. We are experiencing cold-like symptoms along with headaches etc. My husband took the check to the address that FIRST FRANKLIN gave us 5 minutes from our home.
To our surprise, the Company that was at that location was called INTERGRATED MORTGAGE SOLUTIONS, and told him that they needed to send the check to FIRST FRANKLIN. They are the “middle man” and actually make a commission off of these insurance checks! What a racket they have going!!!!
Meanwhile we have the beginnings of a “sick house” with the MOLD growth , and we get to suffer physically, etc while this is going on. They could not give him any answers, therefore we decided to write you first and possibly seek legal advice. Our home is valued at $135,000 and we owe $95,000 therefore there should be approx. $40,000 equity sitting in there. The check is much less than that. Do you know another way that this can be done without all of the middle men? We just want to get these repairs done asap with the cold weather coming along with more rain.
Please help! Thanks!”
Wow!
We’ve got a few things to answer here. One is the standard procedure lender’s use when their collateral (your home) has been damaged. Next, is the issue of whether the amount is enough to cover the damages. Next is is the issue of the lender issuing enough to get started. Next is this issue of a “middleman”. And lastly, is the issue of mold and an ongoing problem.
First it is the standard practice to issue the checks with your name and the lender’s name (as your lender is listed as loss payee on your policy right along with you) which then gets deposited in your escrow account out of which the lender (much like a construction lender) then doles out payments as work is completed. Many a contractor has done shoddy work but with his check hanging in the balance, that is less likely. Now if part of the insurance check is for personal property losses…those should be returned to you in the first payment or ask your insurance company to issue separate checks for home repair and personal property which is actually the norm.
Next is the whether or not your insurance company is offering you enough to make the necessary repairs…and it sounds like based on estimates you certainly don’t think so. This can be avoided by being prepared with the adjuster shows up. Make sure your contractors provided details estimates to put the home back to the condition it was in…no short cuts. Make sure all the estimates include costs for pulling the proper permits. Show these estimates to the adjuster and see what he says. It’s a negotiation between you and him. Many times he can help you by talking to the contractor to get a lower bid or recommend less expensive but fully competent contractors.
If you can’t get satisfaction from the adjuster, get your agent involved. Either way, this has nothing to do with the lender.
The lender will issue enough funds from the insurance check to get started…but only if you show them the contractor’s estimate with an amount NEEDED to get started. Otherwise they go with the 50% rule. If contractors will clearly put what they need to start work on your home…the lender will issue the money because they want your house fixed as much as you do.
As far as this “middleman” thing goes…I’ve never heard of it. I’ve heard of mortgage companies outsourcing the payment and inspection followup process in disaster areas…which I expect is what is happening here. Your servicer needs the money in the account to have the assets necessary to pay out, but they then outsource the review of estimates, the sending out of inspectors, and the issuing of checks to contractors and homeowners. Nothing new there.
Lastly the mold issue is a big problem and if you are covered by insurance for mold infestation is something you’d take up with your insurance company. Contact your agent and find out if you are covered for mold. Then get his help and a new estimate for mold removal. Tell him your story. He is your first source of help on the ground in cases like this.
I will say most likely you will need a lawyer too. If the hazard insurance company refuses to pay the proper amount or the lender gets increasingly more obstinate, a strongly worded legal threat letter goes a long way. So definitely sit down with an attorney as soon as possible.
Good Luck!
Author: The Mortgage Insider
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You very likely signed away your right to any earnings on those funds when you signed your mortgage note. I went through a similar process with Citimortage where they ended up holding the money as long as they could and making excuses as to why it couldn’t be released. Then when we finally got a check from them – 6 weeks after sending it to them and 3 weeks after our new roof was finished – it was from an escrow account in the exact amount of the first check. I did some digging in our mortgage contract and found this:
“Unless an agreement is made in writing or Applicable Law requires interest to be paid on such insurance proceeds, Lender shall not be required to pay Borrower any interest or earnings on such proceeds.”
So yeah, that’s exactly what they’re doing. They make money as long as they hold the funds so they’ll do everything they can to delay giving it up.
It is literally theft, either from me or from my contractor, depending on how you look at it. Why can’t that interest be applied to my loan balance? Why can’t we split the proceeds since we’re listed jointly on the check.
I normally don’t think mortgage companies are as evil as many people like to say, but this is just wrong.
JR
JR,
You don’t get any interest on escrow accounts…and that’s where they deposit insurance checks…into your escrow accounts. Banks make a ton of money from everyone’s tax and insurance payments collected throughout the year in the escrow account.
As far as holding on to the money to make more interest…that would imply they’d do the same on taxed and insurance escrows too.
I think it’s just that the servicing company being slow due to all the foreclosure victims taking up all their time…maybe.
if you have mold issues, get a dehumidifier and start running it. Mold can only grow in moist areas, dry them out and don’t forget to drain the resevoir often, in the beginning several times a day!
I took care of a leaky roof mold issue for a friends house that way
DianeR,
I can’t imagine an insurance company over paying for repairs. If anything the insurance companies try to low ball the repair payouts.
I’m sure your insurance agreement states you can’t profit from a payout, so be sure to put all the money into the house.
I’m experiencing the same mess with my mortgage company. This process ought to be illegal.
The mortgage company has held my settlement money for over two months now –and when I call everyday to check on it, the mortgage company puts me on hold for 20 to 30 minutes then comes back on and says either that they are sending it out tomorrow or to call back tomorrow.
It has become apparent that the mortgage company, EMC, is not willing to do the right thing therefore I am going to the state Attorney General tomorrow and trust that will work. –I think EMC should be required to send me interest on the money that they are holding. They leave me no choice but to get nasty about it. It would be so much easier if they would just do the right thing…
–And mold is growing in my house now, too. I just hope the pipes dont burst in this freezing weather.
Signed, Angry in Arkansas
If the Mortgage Company holds an insurance check in an escrow account until after repairs are made on the house, and the repairs do not end up costing the amount that was given, what happens to the extra money? We do not have an escrow account for our taxes, etc We pay those on our own, but due to the hurricane, the mortgage company is holding the insurance funds until all repairs are finished. We are doing some of them ourself instead of paying extra money to an outside contractor therefore it will be less on somethings. Does the mortgage company keep the leftover funds or do they issue it to us when repairs are complete?