Mortgage company holding your insurance check: how to get the money released

If you have a mortgage, the insurance check for damage to your home will usually be made out to you and your lender, or sent to the lender directly. The New Jersey Department of Banking and Insurance explains why: the lender is named as loss payee because it holds a security interest in the property, and its role is to make sure the home is repaired. This article explains how lenders usually release the money, what rules may apply, and which requests to put in writing.

Why the lender is on the check

Most mortgage contracts require you to insure the home and give the lender rights to the insurance proceeds for the dwelling. The lender wants the house repaired, because the house secures the loan. In practice this means:

• you usually cannot deposit the dwelling check without the lender's endorsement;
• the lender may hold the money and release it in stages as repairs progress;
• the lender may ask for documents and inspections before each release.

Payments for your contents or for additional living expenses are a different matter. They are often paid to you alone, and for loans owned by Fannie Mae, its rules tell the servicer to issue you a check immediately for any proceeds designated for contents or living expenses. Check how each payment is made out.

How lenders usually release the money

Each lender sets its own process, but it often follows rules set by the investor that owns the loan. For loans owned by Fannie Mae, where the home can be legally rebuilt and you intend to repair it, its Servicing Guide (section B-5-01, Insured Loss Events) sets the outline:

Loan status	What the servicer may release
Current or less than 31 days late	An initial release of up to the greater of $40,000, 33% of the proceeds, or the amount by which the funds exceed what is owed on the loan; the rest after periodic inspections
31 days or more late	If total proceeds are $5,000 or less, one payment; above that, an initial 25% (capped at the greater of $10,000 or the excess over the loan balance), then increments of up to 25% after inspections; a final inspection in every case

Fannie Mae also requires the servicer to keep undisbursed proceeds in an interest-bearing account and to pay the interest to the borrower once repairs are complete, or earlier if you ask. If you already paid a contractor or bought materials, the servicer may reimburse you on paid receipts, and receipts are not needed when the proceeds are $40,000 or less. A borrower who is 31 days or more late must also be evaluated for a workout option. If your loan is not owned by Fannie Mae, other rules apply: ask your servicer which ones.

What the lender will usually ask for

Requirements vary by lender. Loss draft packets often ask for some or all of these before releasing money:

• a copy of the insurer's estimate or settlement letter;
• the signed contractor agreement, the contractor's license and insurance details, and sometimes a W-9;
• a repair plan or bids, if several releases are planned;
• the original check, endorsed as instructed;
• for later releases, an inspection report or proof of work completed, such as invoices or lien releases where applicable.

Ask for the full list in writing at the start: missing documents often delay a release.

Rules in some states

Some states set their own rules on how long a lender can hold the money without explaining what it needs. In Texas, for example, Chapter 557 of the Insurance Code applies when a claim for damage to a home is paid to both you and your lender and the lender holds the money pending repairs:

1. Within 10 days after receiving the proceeds, the lender must tell you each requirement for releasing them.
2. Within 10 days after receiving your request, the lender must release the requested money if it has sufficient evidence that you met its requirements, or explain specifically why not and what is still missing.
3. A lender that fails to do either must pay 10% annual interest on the money it holds, except on proceeds applied to reduce the loan.

Other states have different rules or none. Your state insurance department, or the agency that regulates mortgage servicers, can tell you what applies.

Requests to put in writing

Phone calls with a servicer's loss draft department are easy to forget and hard to prove. Written requests create a record:

1. A request for the lender's written requirements to release insurance proceeds, with the claim number, loan number and amount received.
2. A cover letter for each set of documents you send, listing what is enclosed.
3. A request for each release, stating the amount and the work it covers.
4. A request for a written explanation if a release is refused or delayed.
5. A request for a statement of the account holding the proceeds, including any interest earned.

Keep the tone factual, send each letter in a way you can prove, and log the date and any reply.

Help and complaints

If the lender does not answer, start with its loss draft or insurance claims department and ask for a written reply. Under the federal mortgage servicing rules (Regulation X), a written request for information sent to the address your servicer designates must be acknowledged within 5 business days and answered within 30 business days in most cases. If that fails, you can file a complaint with the Consumer Financial Protection Bureau, your state insurance department or the regulator for mortgage servicers in your state. United Policyholders, a non-profit, publishes free guides on getting lenders to release insurance funds.

Putting it together

The Home Insurance Claim Letters Pack turns these steps into ready-to-use files, with nothing pre-filled that should come from your records, your policy or your insurer:

• US_Claim_Letters_User_Guide.docx: step-by-step user guide with key terms, rules that may apply, sources and a final checklist.
• US_Claim_Letters_Claim_Letters_TEMPLATE.docx: editable letters, including the letter to your mortgage lender about insurance payments, and letters to send documents and confirm calls.
• US_Claim_Letters_Call_Notes_TEMPLATE.docx: printable call-notes sheets for calls with your lender, insurer or adjuster.
• US_Claim_Letters_Claim_Diary_TRACKER.xlsx: claim diary with key dates, contact log, documents sent and payments received.

Log the date the lender received the check, send the request for its requirements, and track each release against the amount it still holds.

Quick checklist

• Check how each insurance payment is made out.
• Ask the lender for its release requirements in writing.
• Send the contractor documents in one complete package.
• Request each release in writing with the amount and the work it covers.
• Track inspections, releases and the balance held.
• Ask for an account statement showing any interest.

General information, not legal or insurance advice. Your policy decides what is covered.