This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Can Mortgage Lenders Hold Your Insurance Money Hostage?

By all accounts, what has been reported in Texas isn't a common occurrence. Both Northagen and Barry say it would be extremely unusual for a lender to require homeowners to pay down their loan balance with insurance funds before they could make needed repairs, since it is in the lender's best interest to have the property restored. Northagen says this might only occur only if a borrower is seriously delinquent or in foreclosure. Neither Northagen nor Barry has ever heard of this happening to borrowers who are current on their mortgage.

Mortgage lenders and insurance claims

Northagen says that if homeowners haven't contacted their mortgage lender or servicer shortly after their home was damaged, receipt of a check made out to both lender and homeowner should trigger you to act.

"If the insurance claim is less than $15,000 and the loan is current, the servicer will usually endorse the check and release the funds to the homeowner with minimal documentation such as a photo ID and a copy of the insurance adjuster's worksheet," says Northagen. "About 60 percent of the time, this is how claims are handled."

However, Northagen says the other 40 percent are larger than $15,000 and require monitoring by the mortgage lender.

"Typically, for a larger claim, the lender becomes more intimately involved with the repair process," he says. "The lender would need to see the contractor's estimate and a W-9 document for reporting purposes. Under these circumstances the lender would put the insurance funds in escrow after getting the borrower's endorsement and then would release the funds in three installments."

On a $30,000 claim, for example, the first $10,000 would be given to the homeowner to pay the contractor when the claim is first documented, according to Northagen. The lender then pays for an inspection when the work is approximately 50 percent complete and then releases the second installment. The final payment is made after another inspection ensuring that the repair is complete.

Delinquency changes everything

Northagen says that borrowers who are current on their payments should experience the same process regardless of whether their property was entirely destroyed or not. Even borrowers who are in default normally will have their insurance claim handled the same way as long as they are working with the lender on a repayment plan.

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FB $117.75 0.14%
GOOG $698.21 0.75%
TSLA $238.50 -0.94%
YHOO $36.53 -0.19%
AAPL $93.85 0.12%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs