Why Your Homeowners’ Insurance Check Has Your Mortgage Lender’s Name on it
You have damage to your home, and it looks like your homeowners’ insurance property damage claim is going OK. The property damage adjuster is out at your property, and says that your loss is covered (or at least, that it seems to be upon first inspection). Your insurance company says that it is sending a check and amazingly enough, the check is about enough to adequately bring your home to the condition it was in before the damage.
When the check comes, you are surprised to learn that it is not just written out to you, as the homeowner. Instead, it also has the name of your mortgage company. Can they do that? Why do they do that?
Why the Mortgage Company (the Lender) Cares
Remember that if you have a mortgage, your mortgage lender has a vested interest in your property. Let’s pretend your roof was damaged. The insurance company cuts you a check. But instead of using the money to fix the roof, you decide you can live with the damage, and you use the money to go on a cruise.
Certainly, you are damaged because you now have to live with a damaged roof, having blown your money on a cruise. However, your mortgage company has been damaged as well, because now the value of the property is decreased, possibly to an amount that is less than what you owe (a condition that is known as being “upside-down”).
Your mortgage company wants to make sure that the value of your home is as high as it can be, so that when you sell it, or if you are foreclosed on, the mortgage company can recoup when you owe on the loan through the sale of the property. If you don’t apply the funds given to you by the insurance company to fix your property, your property’s value could go down to a level that the mortgage company would not be able to recover what it lent to you.
Although you may not like the idea of having your lender’s name on your property damage insurance claim check, you probably agreed to that condition in your mortgage loan documents. Most standard mortgage loans require that the mortgage company be an additional payee, and most homeowners’ insurance companies require that any checks be issued to both you and your mortgage company. The last thing the insurance company wants is to be sued by your lender, for failing to protect the lender’s interests.
This situation does not occur for any damage that does not directly affect the value of your mortgaged property—for example, claims for personal property, business interruption, or liability claims.
Get your property insurance attorneys on your side as soon as possible. Contact the Miami property damage insurance attorneys at Velasquez & Associates P.A. today for help dealing with your property insurance company.