Can the lein holder take your claim check and decide how it is spent?
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UPDATED: Oct 14, 2011
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Insurance Question from Herreid, SD
Asked on 10/14/2011
Can the lein holder take your claim check and decide how it is spent? We are buying our home, we had to file a claim after a major hail storm. When we went to deposit the check the bank took the check and told us to have all the work done and then bring them the receipts and they would reembuise us! Any money left over would be put at the end of our payments!When we told them we had already made the arrangment with a contractor to provide the materials they told us they we had to pay it out of our pocket until the project is done. Of course we don't have $12,000 to make the repairs and we have rain water coming through the ceiling!
Answer given on October 14, 2011
When you have an insurance claim, the insurance company will include the lienhold on the check (your mortgage company). This is because, the lienholder has an interest in the repair of the property which they are holding as collateral until you finish paying off the loan. If by chance you foreclosure on the property and they get it back and have to sell it, they want it in the best condition possible in order to get the money they put out on the house. Usually, they will refund to you any money left over. However, if you are not current on your loan payments, they will keep the money left to make you current. Normally, the mortgage company will want to see a copy of the adjuster report outlining the damage. They will then send an inspector to verify that the repairs have been completed and send you draws in accordance to the precentage of repairs completed (10% completed, 10% of the money). Most mortgage companies understand that homeowners may not have the money upfront to make the repairs and will usually give you a percentage of the money to get the work started. Put a statement in writing to the mortgage company advising them that you do not have the money to get the work started. Request a deposit amount that your contract needs (say $4,000) to get started. They should be able to advance that money. You will have to let them know when the contractor is finished and then they will send an inspector to verify. Explain in the letter that you are unable to move forward and this delay is causing further damage to their collateral. Make sure you send a copy of the letter to the president of the bank! Hopefully, this will get things moving for you!
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