A loss draft or (claim check) refers to a situation where a homeowner receives a check from their insurance company for a claim due to damages incurred by natural disasters. The check is made out to both the homeowner and their mortgage company.
When a homeowner experiences damages incurred due to natural disasters, an insurance representative will assess the damage on-site before a loss draft is issued. Once the homeowner and insurance company agree on the repair costs, the insurance company will issue a loss draft. Once the payment is approved, the payment is usually made out to both the homeowner (the insured). If there is a mortgage company involved, the homeowner and their mortgage lender, ensuring both parties are involved in the repair process.
After receiving a loss draft, bank procedures vary slightly from institutions, but most commonly the owner will be required to endorse it and then take it to the mortgage lender. The owner cannot cash the check because it is made out to both the owner and the mortgage lender.
Non-Monitored Claims
Claims with a total RCV of less than $40,000 are generally considered non-monitored as long as the insured has no mortgage delinquencies, modifications or forbearances within two years of the date of loss. Insurance companies may also exclude the mortgage company as a payee on the depreciation check if the job is confirmed complete with a certificate of completion and/or completion photos.
Monitored Claims
A claim is typically classified as monitored when the total amount is over $40,000 Replacement Cost Value (RCV). However, varying limits may apply as some mortgage companies have higher or lower thresholds based on investor guidelines. Mortgage companies will also consider an insurance claim monitored if the property owner has missed payments or received mortgage relief (like a forbearance or modification) within two years of the date of loss.
The check is deposited into an escrow account in the property owner’s name from which disbursement payments are issued based upon project progress and completion. The initial disbursement payment may only be a portion (25 to 33%) of the initial actual cash value (ACV) insurance check until further build documentation is received.
The mortgage company will also request a copy of the insurance adjuster’s worksheet or estimate of the repairs, that is issued by the insurance carrier with their approval of the claim. If a claim settlement was reached, a copy of the settlement letter or final release should be provided.
Additional documentation pertinent to the contractor(s) performing the repairs may be required including copies of their professional license, certificate of insurance, performance bond, W-9, contractor agreement and waivers of lien. Draw schedules could be requested for larger restoration projects that are expected to take multiple weeks or months to complete.
Completion inspections are also required by the mortgage company to confirm repairs have been met according to the claim documentation. Inspections are scheduled with the mortgage company’s loss draft department and usually assigned to a third-party provider who will perform an on-site inspection.
Once the inspection photos and report are reviewed by the mortgage company, additional funds disbursements are made. The majority of these inspections are scheduled at 50% completion and 95 to 100% for the final.
So What Does This All Mean?
What this means for property owners: Since the mortgage company will not release additional funds until they review each build inspection report, property owners should try to schedule inspections seven to ten days ahead of work completion to reduce delays on additional draw or final payment while waiting on an inspector. If your contractor doesn’t receive final payment in a timely fashion, a lien could be placed on your property until their invoice is paid in full (potentially, with interest).
What this means for contractors: You’ll want to send the mortgage company your contractor agreement, preferably including a direction of payment and your W-9 so they can add you as a payee to the disbursement checks. However, adding your company as a payee isn’t always guaranteed so you’ll want to get a third-party letter of authorization signed by the insured so you can follow up on the status of the check disbursements.
What this means for public adjusters: Mortgage companies don’t make the payment process for public adjusters any easier as they are often removed as a payee on disbursement checks. Ultimately, the PA’s letter of representation (LOR) and/or contract with the insured for services rendered as part of the claim settlement is their formal record of payment owed.
What this means for attorneys: Same as with PAs, property attorneys are removed from disbursement payments and sometimes utilize their own escrow accounts to remove themselves as a payee before sending the checks to the mortgage company. Property owners inherently want their repairs completed as soon as possible so working out an appropriate percentage split of the mortgage company’s disbursement payments ahead of time will keep the insured happy while paying down the legal bill.
What can we do for you?
If you’re a property owner who is filing an insurance claim for the first time, you’re likely not sure where to begin. You know that your home is in distress and you want to get back to normal ASAP. Commonly, you’ll soon learn you need to work with your insurance and mortgage companies to get your insurance claim check/homeowners claim checks endorsed and because the process as noted above is not so straightforward on monitored claims or even non-monitored claims, you feel burdened on top of an already damaging situation.
If you’re a contractor, you’re busy running your business and spending time dealing with mortgage companies is not an efficient use of your time. You could end up spending hours on the phone with the mortgage company, driving around to get signatures from multiple parties or having to pay for FedEx tracking labels to get signatures on each check—a process that slows the claims process down even more due to checks sometimes getting lost in the mail and FedEx visits needing to be made.
iink can help move claims along for both property owners and contractors. We do so by managing the process of multiple disbursements for contractors, coordinating property inspections, and moving multiple checks involved on a monitor claim through the iink platform. This time-consuming process entails hours of administrative processing that we take off your plate.
Frequently Nuanced Questions
1. What is the mailing time of checks?
After the Mortgage Company receives the check and it's a non-monitored claim, it will take about 3-5 business days for them to mail it back. Roughly 85% of mortgage companies will you the return label that we provide, but some will use their own methods.
2. What is the timing of the inspection?
Once we are notified that an inspection is ready to be done, we will contact the mortgage company on your behalf and request it to be done. It takes roughly 3-5 business days for the mortgage company to contact and set up a 3rd party inspector and then another 2-5 business days for the inspector to contact the property owner (Insured) to set up an appointment. We will then ask the property owner to let us know when this is completed since it can take an additional 2-5 business days for the mortgage company to get those results and review them.
Note: Please be sure to communicate to iink as early as possible if you are ready to go. We ask the Contractors to let us know at least 7 days prior to inspections being done to get a head start on the process.
3. What happens when you have a mortgage company and your HELOC bank on the check?
HELOC is a secondary mortgage, so in this case, we would have to send it to them first for signatures. Some HELOCs are worked differently as well, so we will need to call and verify. Once that is completed, we can go to your original mortgage company to complete the process.
4. What happens if someone on the deed has passed away?
In the case of a death, the living spouse will need to be listed on the mortgage. You'll also need to provide iink with the death certificate and any documentation stating that the spouse is the executor of the estate.
5. What happens if the house is actually paid off in full?
If the house is paid in full, the property owner will need a letter of satisfaction from the mortgage company to give to their insurance agent, to have them removed from the insurance policy.
6. What happens if your mortgage is sold to another servicer or the insurance carrier puts the wrong mortgage company on the check?
The insurance company will have to provide the new mortgage company information and reissue the check.
7. What happens if the check is lost in the mail, expired, or lost at the bank?
The check would need to be reissued and must notify the insurance agent that it was lost in mail. A stop payment has to be done first and then they can reissue a new check to start the process over again. When they upload a reissued check due to being lost in the mail from the mortgage company, we will need a letter from the insurance company stating it was reissued so that we can call and update the mortgage company.
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