Can YOUR Mortgage Company Verify Your Homeowner's insurance Damage Claims Proceeds … and then apply the money to your MORTGAGE BALANCE , leaving you facing a Mechanic's Lien for non-payment of the repair bill?
As a result of damage to a homeowner's roof from a storm, the homeowner filed a damage claim with his Homeowner's Insurance company. The adjustor inspected the damage, and the insurance company sent a check to the homeowner. As is customary with most insurance companies, the check was made out to both the homeowner and the Mortgage Company, let's call them "Homecomings Financial" for lack of a better name – and because that IS their name. The homeowner sent the check to the Mortgage Company expecting them to endorse it and send it back while he hired a contractor to repair the roof.
Instead of endorsing the check, the Mortgage Company sent the check back to the homeowner UN approved along with a package of forms the homeowner was required to fill out and sign and return along with the approved check. The Mortgage Company would then deposit the check (possibly anticipating interest from the HOMEOWNER's insurance claims proceeded). Once the Mortgage Company received all of the above, they would send out a third party inspector, and if the damage had actually occurred and the repair work was actually scheduled, they would send the homeowner a check for ONE THIRD of the claim. At the 50% completion point, the homeowner was required to contact the Mortgage Company to send out the inspector again, and within 3-5 business days, the inspector would inspect, take a couple of days to file a report, and after the Mortgage Company received the inspector's report, they would send the second ONE THIRD of the claim money. At the 95-100% point, the above procedure was to be repeated so the homeowner could receive the final ONE THIRD of HIS OWN INSURANCE CLAIM MONEY (not including any interest the Mortgage Company may have earned while holding it in THEIR bank account).
… It Gets Worse …
In the fine print of one of the forms was a notice that the Mortgage Company reserved the right to REDIRECT the claim proceeds towards the mortgage balance instead or returning the money to the homeowner to pay the contractor if "certain conditions" issued, one of which was whether the "repairs" would restore the property to its "original condition" or "substantively improve its value" – and the MORTGAGE COMPANY gets to make that decision. Another "condition" was if the balance on the mortgage was LESS than the amount of the damage claim, again the Mortgage Company reserved the right to REDIRECT the claim proceeds towards the mortgage balance .
One of the forms REQUIRED by the Mortgage Company was a "Hold Harmless" agreement that said if the homeowner failed to pay the contractor, the Mortgage Company would have held harmless from any Mechanic's Lien filed by the contractor.
Do not let it happen to you. If you have not checked the fine print in your mortgage contract, check it NOW! If YOUR mortgage company has a similar provision in your mortgage contract, CHANGE MORTGAGE COMPANIES! Let a reputable lender get you out of that outrageous, unethical, sometimes illegal arrangement and into a mortgage contract that could even save you money with a lower interest rate. Do not wait until the nightmare described above hits YOU!