Receiving an insurance claim check after property damage can be a relief, but it can also bring some surprises. One surprise is seeing your mortgage company’s name listed as a co-payee on the check. This can be unclear, especially if you weren’t expecting it. Understanding why this happens can help you navigate the process more smoothly and ensure your property gets the necessary repairs.
Understanding the Basics After Receiving a Property Insurance Check
The mortgage company is listed as an “additional payee” on the insurance policy because it has a vested interest in insurance coverage payments issued for any loss to the insured property. The mortgage company presumably loaned money to the policyholder, and to guarantee repayment, the policyholder agreed to grant the bank a mortgage on the property as collateral for the loan.
If the property is damaged or destroyed, its value decreases. This means the mortgage company’s security for the loan is also reduced. To protect their investment, the mortgage company’s name will appear on all insurance loss payments related to the property given as collateral for the loan. The property is the mortgage company’s guarantee in case the policyholder can’t repay the loan, so the mortgage company has a strong interest in ensuring the property is either repaired or the outstanding loan is paid down to a point where the property’s value fully secures the loan. This vested interest is why the mortgage company’s name appears on your insurance check, regardless of whether you use a lawyer.
Including the mortgage company’s name on the insurance check usually affects coverage relating to the actual building on the property since the home is generally given as collateral for the mortgage loan. On the other hand, claims for damage to personal property, liability, or loss of use do not relate to property subject to a mortgage. Therefore, settlement checks on these losses would not have to include the mortgage company’s name as an additional payee.
Why It Still Applies When You Use a Lawyer
Even when a lawyer is involved in your insurance claim process, including the mortgage company’s name on the check remains necessary. Here’s why:
- Legal and Contractual Obligations: The mortgage company’s rights and obligations are outlined in the contract, which remains unchanged regardless of legal representation. The insurance company must comply with these terms when issuing the settlement check.
- Lender’s Rights: Using a lawyer will expedite and maximize your property insurance claim, but it does not negate the lender’s right to be involved in the disbursement of funds. The lawyer’s role is to advocate for you and ensure you receive a fair settlement, but they cannot alter the fundamental terms of your mortgage agreement.
4 Steps to Take When You Receive the Check for Your Claim
If you find that your insurance check includes your mortgage company’s name, here’s what you should do:
1. Contact Your Mortgage Company
Contact your mortgage company as soon as you receive the check. Inform them of the situation and ask about their process for endorsing and releasing the funds. Each lender may have different procedures, so following their specific instructions is essential.
2. Endorsement and Disbursement: After receiving the check, your lawyer will guide you through the steps of endorsing it. The check will usually need to be sent to the mortgage company for their endorsement before being returned to you or directly to the contractors handling the repairs.
3. Provide Necessary Documentation
Be prepared to submit documentation such as repair estimates, insurance claim details, and contractor information. The mortgage company may require this information to verify that the funds will be used appropriately for property repairs.
4. Complete the Repairs and Provide Proof
After the repairs are completed, you might need to provide proof of completion, such as receipts, invoices, or inspection reports. This ensures that the mortgage company can verify that the insurance funds were used as intended. If the initial check did not cover all repair costs, the mortgage company might release additional funds upon receiving proof of the completed work
Understanding the Importance of This Process
While it may seem inconvenient to have your mortgage company’s name on the insurance check, this process serves an important purpose. It protects both you and the lender by ensuring that the property is repaired and that the value of the home is maintained. Additionally, it helps you manage the funds responsibly, providing oversight to ensure that the insurance payout is used as intended.
Common Questions and Concerns After You Receive Your Property Insurance Claim Check
What if I Need the Funds Quickly?
Communicate with your mortgage company about the urgency and see if they can expedite the process. Some companies may offer faster processing for emergency repairs.
What if My Mortgage Company Is Unresponsive?
Document all communication attempts and escalate the issue to a supervisor or manager. You can file a complaint with your state’s banking or mortgage regulatory agency as a last resort.
Conclusion
Even when you’ve used a lawyer, receiving an insurance check with your mortgage company’s name on it is standard practice. This process ensures that the lender’s financial interest in the property is protected and that the insurance money is used appropriately for necessary repairs.
By understanding the reasons behind this practice and following the necessary steps, you can smoothly navigate the claims process and ensure your property is restored to its original condition. If you have any concerns or need further clarification, don’t hesitate to contact your lawyer, mortgage company, or insurance provider for assistance.