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How Insurance Companies Deal With Your Mortgage Provider

If you have a mortgage, your mortgage provider has a vested financial interest in your property. It must be declared to your homeowners insurance company that will respect and protect their interests.

There is a lot of confusion about how insurance companies deal with your mortgage provider in the event of a homeowners insurance claim and how checks are issued.

With many years of experience as a public adjuster in Los Angeles, we are happy to answer some frequently asked questions on how insurers deal with your mortgage lender.

Man protecting model of house between his hands

When you want to borrow money from a financial institution to buy a house, you have to offer the property as collateral. Should you fail to keep up your mortgage payments, your mortgage provider may take possession of your property and sell it to recover the money you owe.

Your mortgage provider will also expect you to have adequate homeowners insurance. They need to ensure that should your property be destroyed or damaged, they will not be left with insufficient collateral to cover the outstanding balance on your mortgage.

A standard California mortgage contract will contain a property insurance clause that states the following (or use similar wording):

Property Insurance: Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss” – improvements are typically all buildings on your property and include things like your fence and driveway.

Note that in California, as per California Civil Code § 2955.5 (a), your mortgage lender may not require you to have homeowners insurance above the replacement value of improvements:

No lender shall require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the improvements on the property.”

Frequently Asked Questions

Signing mortgage contract

Why is the check from my insurer payable to both my mortgage lender and me?

To safeguard the interests of your mortgage company, checks for repairs to your home are payable to both your mortgage lender and you. It protects mortgage providers from homeowners who may want to use the money for purposes other than what it’s intended for.

How do I get access to the money my insurance company is paying to settle my claim?

After suffering damage to your property after a covered event, such as water damage or fire damage, you want to have the necessary repairs done as soon as possible. Fortunately, your mortgage provider has the same objective.

Your mortgage lender will typically require you to endorse the check before depositing the funds in an escrow account. Progress payments are made based on certain criteria.

For example, proceeds may be released as follows:

– ⅓ upfront after you accept a quote from a contractor.

– ⅓ after an inspection to verify the job is 50% complete.

– ⅓ after verifying that the job is 100% complete.

Funds deposited by your mortgage lender are usually managed by their Loss Department. But take note that certain mortgage providers outsource this function to third parties. Make sure you follow up regularly if you don’t receive good service and fast replies.

Are all checks from my homeowners insurance company payable to both my mortgage lender and me?

In principle, only checks for repairing damages to your property or improvements are payable to both your mortgage lender and you.

Additional living expenses (ALE) coverage

If you’re unable to live in your house while it’s being repaired or rebuilt, most standard homeowners insurance policies will provide you with additional living expenses (ALE) coverage. It reimburses you the difference between your regular living expenses before a covered loss and your living expenses after a covered loss for you to maintain a similar standard of living.

ALE checks are payable to you alone as they do not concern your mortgage provider.

Personal property

Checks covering damaged or destroyed personal property are typically payable to you alone. However, they might sometimes be grouped with other payments.

Note that the amount of the first check you receive from your insurance company will typically be for actual cash value (depreciated amount based on an item’s age), even if your policy covers replacement value.

If you decide to replace an item, your insurer will make a second payment to match the exact replacement cost. If you do not replace it, you will only receive its actual cash value.

That’s a Wrap

We trust this article has given you a better understanding of how insurance companies deal with your mortgage provider. Note that you may receive multiple checks from your insurer, so it’s important to keep track of payments and what they’re for.

Large and complex homeowners insurance claims can be a nightmare to manage. In such cases, we recommend hiring a public adjuster to act in your best interests.

An experienced and licensed public adjuster can help you overcome the challenges of managing your property insurance claim. And they can assist you in getting the best possible settlement offer you’re entitled to under your insurance policy.

Avner Gat, Inc. has 17+ years of experience as a public adjuster in Los Angeles, covering Southern California. We protect homeowners from the games and fine print that insurance companies are known for.

Call us at (818) 917-5256 to find out how we can help you.

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