A loss to your property, to say the least, is a complicated, 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) all have a say in how, when, and if they will agree to either place their endorsement on your check, or hold your check and disburse funds to you and your contractor to begin the needed repair work.
What do you mean they can hold my check? Why is it my mortgage company business?
When you signed the paperwork for your mortgage, there was undoubtedly a clause which required property insurance be kept in force on the property at all times, at the amounts demanded by the lender. If you don't abide, the mortgage company will purchase and charge you for lender-placed insurance. 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 you can repair your property. They of course will insist you repair your property rather than spend the money on other purposes. Your insurance policy includes a loss payee, or mortgagee clause, which states how insurance proceeds which affect the dwelling and the lender's interest in the property will be paid. Because your check will be made payable to all parties taking out the mortgage, as well as the mortgage company, the mortgage company will need to sign the check. Depending on the amount of loss you have sustained, there are several scenarios that come into play.
My loan is current and the check is for only a few thousand dollars. What now?
Typically and depending on the mortgage company, if the investor limit (the amount in which the investors in your loan determines that it will endorse and release the check) .is below 10-15000 and the loan is current, the mortgage company will just sign and release the check. If your mortgage company is a bank which has branch locations, you may be able to take it to the bank. All parties to the check will have to sign, and typically the homeowner will need to be present, armed with a copy of the insurance adjustor's report or worksheet. If there are no branch locations in your area, you will have to send the check and adjustor's report to your mortgage company (often, in reality, a company your mortgage services subcontracts with) .and they will mail the check back to you. If you want the check sent back by overnight mail, you will more than likely have to provide a return overnight envelope. Pay your contractors, and you'll be on your merry way.
I just got off the phone with my mortgage company and they said mine is a "monitored claim". What's that? Why can't I get my check signed?
When a mortgage company monitors a claim, it is because the amount of the loss, as determined by the Actual Cash Value on the adjustor's worksheet is above the limit in which the investor will sign off on the check without verifying that the work is being done to the lender's satisfaction. A mortgage company may also monitor the claim if the loan is in default. (It is amazing how many people I have dealt with whose loans are deeply into default or foreclosure who are very upset that their check won't be immediately released). In most cases, the lender will require that the check be signed and sent into them, and they in turn will send 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 permitted to self-contract, but you will be have to be responsible for turning in paid receipts. You may need the following documents from your contractor (s), some of which will be supplied by the mortgage company.
- Insurance adjustor's worksheet or summary
- 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 establish an account for the contractor to send checks to, and tax forms at the end of the year. A physical, not a post office box, address must be on the document.
- Conditional Waiver of Lien-Neither you nor the lender wants a contractor placing a lien on your house after the work is complete, saying that they are owed more money than the original contact stated. The Conditional Waiver of Lien normally must match the amount on the contract that the contractor has with you as the homeowner
- Signed contract between you and the contractor. Again, the contract amount must match the conditional waiver of lien.
- Certificate of Completion. Some mortgage companies require a form signed by all homeowners stating that the work is completed to the homeowners' satisfaction.
When do I get my first check?
If all the forms are filled out correctly, the Is are dotted and the Ts are crossed, once the lender verifies the contractor is who he or she says they are, you may receive a check, made out to yourself, any co-borrowers, and the contractor within about two weeks. In my experience, it is best to check in with your lender's Loss Draft department by phone every two days. Your contractor will only be able to receive information from the lender if you authorize it in writing, so bear that in mind if you want the contractor to oversee the claim.and make inspection requests.
My contractor demands more that a third down? What do I do?
Depending on the mortgage company and the status of your loan, your lender may have a procedure in place to have management review situations like this as an "exception". The better shape your loan is in, the better your chances of getting it approved.
I've done everything they asked, and I can't get my checks.
Loss Draft departments are very much overworked, and it may just take persistence from the beginning to end of the process. Don't just assume that if you sent or faxed documents in that they have them, they all were correct and money will be on its way. Leave nothing to chance! ALWAYS follow up!
What if I have a first and second mortgage?
Usually the first mortgage holder will demand that all other parties sign off on the check before it is submitted to the first mortgagee. Occasionally a second mortgagee may require documents from the first mortgagee stating that the first mortgagee will be monitoring the claim.
There are a lot of variables and situations that I can't cover here, but it is my hope that should the unfortunate occur, you'll be at least one step ahead of the game and be on the way to having your repairs completed and back into your home just a little more quickly.