I received a payment for the claim I made to my insurance company for damages to my home. Why does my mortgage company appear on the check?
Your mortgage company (referred to as the “mortgagee”) has an interest in your home until you have paid off your mortgage loan. That interest shows in the form of a lien on your property. Because they have an interest in your home, they are named on payments that are made as a result of a claim on your homeowner insurance policy. This is because they, as a lien holder, have an interest in making sure the value of your property doesn’t decrease due to damage. If, for some reason, payment was made in only your name and you decided not to fix any of the damage to your home, the property may lose value. A loss in value would affect not only you as a homeowner, but the mortgagee as a lien holder (and potential owner) as well.
How do I know if my mortgage company needs to be named if I receive a payment from a claim?
You can generally find this information in your insurance policy, and also the deed of trust you signed with the mortgagee. It is what is referred to as a “mortgage clause”. Here is an example of language that would appear in your policy:
A covered loss will be payable to the mortgagee(s) named on the Policy Declarations, to the extent of their interest and in the order of precedence. All provisions of Section I of this policy apply to these mortgagees.
Similarly, there is likely language in your deed of trust that protects the mortgagee in case of loss to the property. That language can be found in the deed of trust whether you received your mortgage loan from a bank, a mortgage company, or even owner-financed your property. Below is an example of language found in the deed of trust prepared in-house at a company that sold and financed its own property. The homeowner is the “grantor” and the mortgagee is the “beneficiary”:
GRANTOR agrees to:
- maintain, in a form acceptable to Beneficiary, an insurance policy that:
- covers all improvements for their full insurable value as determined when the policy is issued and renewed, unless Beneficiary approves a smaller amount in writing;
- contains an 80% coinsurance clause;
- provides fire and extended coverage, including windstorm coverage;
- protects Beneficiary with a standard mortgage clause;
- Beneficiary may apply any proceeds received under the insurance policy either to reduce the note or to repair or replace damaged or destroyed improvements covered by the policy.
In the example above, the company may receive all or part of a payment from an insurance claim, and they can use that money to either reduce the balance of your note, or to directly fix damage to your property that you made a claim for.
I want to be in charge of the repairs. How am I able to cash the check?
You should give your bank a call and speak to your loan officer or the person in charge of your file. This person’s information can usually be found on your closing documents. Explain that you have made a claim, received payment, and need an endorsement from them. The bank will likely ask you to mail the check to them or go in personally to their office so the check can be signed over to you. Sometimes, they want to see proof of some effort by you to begin fixing the property. That could mean a contract with a contractor or repairman, receipts for materials, or an estimate from a contractor for the damages that need to be repaired.
Although this process may seem intensive, the goal is to protect the value of your property. Essentially, the mortgagee wants to make sure that whatever repairs need to be made to the property do get made so that it loses no value. If you ever have a question about the process, you can ask your insurance provider directly what your specific “mortgage clause” means. And, as always, Mostyn Law is here to answer any questions our clients may have about the claims process.