When faced with damage to a home covered by an insurance policy, you may be relieved to know that you will receive a check to make the needed repairs. You may not realize, however, that the check must be endorsed by your mortgage company before you may cash it. If your lender is a large financial institution, securing the endorsement can be an intimidating experience. Knowing what to do in this situation can save you time when necessary repairs to your house must be made.
When you have hazard insurance on your property, the name of your mortgage company is listed on the policy because the lender has a large investment in your house. If a loss occurs, the financial institution has a right to know about the claim, collect the money and make sure it's used to repair the damage. If not, homeowners may be tempted to take the insurance money and move, leaving the mortgage company with property of diminished value.
If your claim exceeds a certain amount established by your mortgage company, such as $10,000, send it to the lender with the signature of all those named on the policy. The lender will cash it and put it in an escrow account. The mortgage company may provide you with a portion of the funds to start the repairs and release the remainder in phases until construction is complete. If your claim check is for a smaller amount, do not sign it until after your mortgage company does. The check will be returned to you to endorse and cash.
If your mortgage company has a local office, take your check to the branch and ask for the endorsement. You also may need to complete and sign a form stating that you will use the money for repairs related to the claim. In addition, provide the paperwork from the insurance company that describes the damage, the needed repairs and the estimated cost. If the department that processes insurance claim checks is in a different area, keep a copy of the check and send the original -- along with the additional documents -- by certified mail. If you have two loans with different mortgage companies, the second lender must sign the check before the first one, if both financial institutions are named.
If your money is held in escrow, ask your lender to place it in an interest-earning account for the duration of the construction. An inspection by your mortgage company may be required to confirm that all repairs have been completed. Pay close attention to the total released at the end of construction and make sure it equals the amount of the claim check. If extra money remains in escrow, request a refund in writing.
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