A loss of your property, to say the least, is a complicated and time-consuming process. Getting that insurance check (also called a loss draft) is often only half the battle. If you have a mortgage, your mortgage servicing company, as well as the entities that invest in your loan (such as Fannie Mae and Freddie Mac) have a say in how, when and if they will agree to place your backing on your check, or hold your check and disburse funds to you and your contractor to begin the necessary repair work.
What do you mean they can hold my check? Why is it my mortgage company’s business?
When you signed your mortgage paperwork, there was undoubtedly a clause that required that the property insurance remain in force at all times on the property, in the amounts required by the lender. If you don’t, the mortgage company will buy from you and charge you for the insurance provided by the lender. You also agreed to report property losses to your insurance and mortgage company, and gave your lender the right to determine how, when, and even if your check is released so that you can repair your property. Of course, they will insist that you repair your property rather than spend the money for other purposes. Your insurance policy includes a loss paid, or mortgagee clause, that sets out how insurance that affects the home and the lender’s interest in the property will be paid. Because your check will be made payable to all parties to the mortgage, as well as to the mortgage company, the mortgage company must sign the check. Depending on the amount of loss you have suffered, there are several scenarios that come into play.
My loan is current and the check is for only a few thousand dollars. Now what?
Generally, and depending on the mortgage company, if the investor limit (the amount in which investors in their loan determine that they will endorse and release the check) is less than 10-15000 and the loan is current, the company mortgage will simply sign and drop the check. If your mortgage company is a bank that has branches, you may be able to take it to the bank. All parts of the check will need to be signed and typically the owner will need to be present, armed with a copy of the insurance adjuster’s report or worksheet. If there are no branches in your area, you will need to mail the check and adjuster’s report to your mortgage company (often, actually, a company that your mortgage services outsource to), and they will mail the check to you. If you want your check to be mailed to you overnight, you will most likely need to provide an overnight mailing envelope. Pay your contractors and you’ll be on your way happily.
I just got off the phone with my mortgage company and they told me that mine is a “monitored claim”. What’s that? Why can’t I sign my check?
When a mortgage company monitors a claim, it is because the amount of the loss, as determined by the actual cash value on the adjuster’s worksheet, is above the limit at which the investor will sign the check without verifying that it is is doing the job. to the satisfaction of the lender. A mortgage company can also monitor the claim if the loan is in default. (It is surprising how many people I have dealt with whose loans are deeply in default or in foreclosure and who are very upset that their check will not be cleared immediately.) In most cases, the lender will require the check to be signed and sent, and they, in turn, will send the payment to the contractor (s) in thirds. A typical schedule might be 1/3 at the beginning of the claim as a down payment to the contractor, 1/3 after a 50% inspection, and the final third after a 100% inspection is completed to the satisfaction of the mortgage company. If you have the ability to be your own general contractor, you may be allowed to self-contract, but you will have to be responsible for delivering paid receipts. You may need the following documents from your contractor (s), some of which will be provided by the mortgage company.
- Insurance Adjuster Summary or Worksheet
- IRS Form W-9 or a substitute provided by the lender. Your contractor fills out this form with a tax ID or social security number. This is so the lender can set up an account for the contractor to send checks and tax forms at the end of the year. The document must include a physical address, not a PO box.
- Conditional Lien Waiver – Neither you nor the lender want a contractor to place a lien on your home after the work is completed, saying they are owed more money than the original listed contact. The conditional lien exemption should normally match the amount of the contract the contractor has with you as the owner.
- Contract signed between you and the contractor. Again, the amount of the contract must coincide with the conditional resignation of the bond.
- Certificate of completion. Some mortgage companies require a form signed by all owners stating that the work was completed to the satisfaction of the owners.
When do I receive my first check?
If all forms are completed correctly, Is are dotted and Ts are crossed out, once the lender verifies that the contractor is who he claims to be, you may receive a check, payable to you, from the co-borrowers, and the contractor at about two weeks. In my experience, it is best to contact your lender’s Loss Draft department by phone every other day. Your contractor can only receive information from the lender if you authorize it in writing, so keep this in mind if you want the contractor to monitor the claim and make inspection requests.
Does my contractor require more than a third down payment? What should I do?
Depending on the mortgage company and the status of your loan, your lender may have a procedure for management to review situations like this as an “exception.” The better your loan, the better your chances of being approved.
I did everything they asked me to do and I can’t get my checks.
Loss Draft departments are heavily overworked and may just require persistence from the beginning to the end of the process. Don’t just assume that if you sent or faxed documents that have them, they were all correct and the money will be on the way. Do not leave anything to chance! ALWAYS follow up!
What if I have a first and a second mortgage?
Typically, the first mortgagee will require all other parties to sign the check before sending it to the first mortgagee. Occasionally, a second mortgagee may require documents from the first mortgagee stating that the first mortgagee will monitor the claim.
There are a lot of variables and situations that I can’t cover here, but I’m hopeful that if the unfortunate happens, you’ll be at least one step ahead of the game and on your way to completing your repairs and getting home a little faster.