Mortgage companies often manage funds from insurance claim checks as part of their obligation to protect the value of the property.
Protection of the Property
Mortgage companies are listed on insurance policies because they have a vested interest in the property. They may withhold funds to ensure the repairs are completed satisfactorily, protecting their investment.
What Happens:
- The mortgage company may release funds in increments or require proof of progress on repairs before disbursing more funds.
- This ensures the funds are used for their intended purpose: repairing or restoring the property.
Escrow Management
Some mortgage companies place insurance claim funds into an escrow account and release them in stages.
Key Steps:
- Initial Inspection: A portion of the funds is released to start the repair work.
- Progress Inspections: Further funds are released after confirming repair milestones through inspections.
- Final Release: The remaining funds are disbursed upon completion of all repairs, often requiring documentation or a final inspection.
Loan Status
If the mortgage account is not in good standing (e.g., delinquent payments), the mortgage company may retain a portion or all of the funds.
Resolution:
- Bring the loan current to facilitate the release of funds.
- Discuss options with the mortgage servicer to resolve outstanding issues.
Documentation Requirements
The mortgage company might withhold funds if required documentation is missing or incomplete.
Commonly Required Documents:
- Contractor estimates or invoices.
- Insurance adjuster’s report.
- Signed contracts for repairs.
- Proof of completion (photos or inspection reports).
Deductibles
If the insurance payout includes funds for a deductible, the mortgage company will not release that amount, as it is the homeowner’s responsibility to cover the deductible.
Fraud Prevention
Mortgage companies may delay or withhold funds to verify the legitimacy of the claim and ensure funds are used appropriately. This includes verifying contractors, repairs, and compliance with the insurance policy.
Steps to Resolve the Issue
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Contact the Mortgage Company:
- Ask for a detailed explanation of why the funds are being withheld.
- Request a timeline for fund release and specific requirements.
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Submit All Documentation:
- Provide any missing paperwork, such as repair estimates, contracts, or proof of repairs.
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Request an Inspection:
- If repairs are completed, schedule an inspection with the mortgage company to expedite the release of remaining funds.
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Escalate if Necessary:
- If delays persist, request to speak with a manager or escalate the issue through the mortgage company’s dispute resolution process.
Preventative Tips
- Review your mortgage and insurance policies to understand fund disbursement procedures.
- Communicate with your insurance adjuster and mortgage company early in the claims process.
- Ensure all repair contracts and estimates are clear, detailed, and align with the insurance payout.
By understanding the reasons behind fund withholding and actively working to meet the mortgage company’s requirements, you can expedite the release of the remaining funds.