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.
Can Mortgage Lenders Hold Your Insurance Money Hostage?
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