News

When your property is damaged and your insurance claim is approved, the last thing you want is to face delays or complications in getting your money so you can begin repairs. Yet, many homeowners and business owners experience this exact scenario. Unfortunately if you have an outstanding mortgage on the insured property, the mortgage company may be listed as a co-payee on the insurance settlement check.

Why is the Mortgage Company on the Check?

The legal right of mortgage lenders to be listed as co-payees on insurance claim checks is widely recognized. In many states (including Texas), insurance laws and regulations explicitly support the inclusion of lenders as payees on insurance proceeds for properties where they hold a mortgage. Insurance policies often include a provision stating that any payments for damages to the property must list the insured’s mortgage company as a co-payee on the check. This ensures the mortgage company is protected by making sure the insured uses the insurance funds to repair the property (the lender’s collateral).

To understand why your mortgage company may decide to hold your insurance check, it helps to know what their interest is in your property. When you get a mortgage to buy a home, your lender has a financial interest in that home. The house acts as collateral for the loan, so if you stop making payments, the lender can foreclose and sell the property to recover their money. Because of this, lenders want to be sure that any damage to the property is properly repaired. If major repairs are not made and the homeowner walks away, the lender is stuck with a property that has lost value, making it harder for them to get back their investment if they need to foreclose.

In most instances the mortgage company will insist on holding the insurance proceeds, or disbursing them in draws, to ensure all repairs to the property are completed.

But How Long Can Your Mortgage Company Hold Your Insurance Check?

Thankfully, there are limitations as to when and how long a mortgage company can hold the insurance proceeds. The Texas Insurance Code requires that if a mortgage company holds all or part of the proceeds from the insurance claim payment pending completion of repairs, the lender shall “notify the insured of each requirement with which the insured must comply for the lender to release the insurance proceeds.” Failure to do so may be a violation of Texas law. If the mortgage company fails to properly provide notice or release the funds, the Texas Insurance Code states that the insured property owner may be entitled to interest of 10% per year on the insurance payment improperly held by the mortgage company.

In sum, the mortgage company must work with you in a reasonable manner to ensure the funds are released timely.

How Can I Speed Up the Release of Funds?

Each mortgage company will have a separate process on how to get the funds released. Certain lenders may have set thresholds (like less than $40,000) where they will simply endorse the check and return it to you. For larger claims, however, they are more likely to hold the funds in escrow and release them in stages as the repairs progress.

Here are a few tips to help the process go as smoothly as possible.

1) Contact Your Mortgage Company. Contact your mortgage company directly and request to speak with a representative of the loss draft or insurance claims department. If possible, it is best to attempt to deliver the check in person and request an endorsement at that time. If you must discuss over the phone, make sure to describe your precise situation. Often, straightforward communication can resolve the issue. Ask for a clear timeline on when the check will be released or what is still required. Request that the mortgage companies make these status requests/updates in writing via email.

2) Provide Complete Documentation. Ensure you have all necessary documents ready, such as the insurance adjuster’s report, repair estimates, and contractor agreements. This can speed up the approval process.

3) Be Patient But Persistent. Securing the release of funds from your lender can take time, especially if they need multiple bids or inspections. While patience is important, make sure to follow up consistently to keep your request moving forward.

4) Understand Your Rights. Although mortgage lenders have the right to supervise the use of insurance proceeds, they are also obligated to act in good faith and must not unreasonably delay the release of funds. You also should request that your insurance company issue separate checks for personal property (contents), additional living expenses if you had to temporarily relocate during repairs, and attorney's fees. These checks should not be held by the insurance company and the mortgage company's interest is limited to the structure of the home/property.

5) Consult Legal Counsel. If your mortgage company's actions are resulting in financial hardship (or you are unable to get adequate responses), it may be wise to consult an attorney who specializes in mortgage and insurance law. Legal experts at Barcus Arenas, PLLC are experienced in this area and can provide guidance and assistance in this legal area.

‍

‍

‍

‍