When you have a mortgage on a home, you may think of the house as yours, but your mortgage company also has a substantial interest in your property. Your mortgage holder requires you to carry insurance on the property. In fact, your mortgage company is listed on your homeowner’s insurance policy as the lienholder.
If your home is damaged, your insurance company will issue a check to pay for repairs, but the check will be made out to both you and your mortgage company. You’ll need the cooperation of your mortgage company in order to cash the check and get the money for repairs.
TL;DR (Too Long; Didn't Read)
Since both you and the mortgage company have an interest in the property, the insurance company issues a check in both of your names.
The Insurance Check
The insurance company issues payment to everyone who has a financial interest in the property. If you’re married or own your home with a partner, both of your names will be on the check. This is standard industry practice. Your mortgage company will also be listed on the check. Your bank won’t cash the check without the signature of everyone involved. You’ll need to endorse the check and send it to your mortgage company.
An Escrow Account for Repairs
The mortgage company will cash the check and deposit the money in an escrow account. It will issue payment in increments to fund repairs, but it won’t pay out all the funds until it is satisfied that all repairs have been made to its satisfaction. You may be familiar with this setup if you have ever built a house. The construction lender paid out construction loan funds in increments to pay the various subcontractors who worked on the home. During rebuilding and repairs, you’ll go through the same process.
Getting the Money You Need
Since you’ll need money to pay contractors to get started on the repairs to your home, you’ll need to submit a request to your mortgage company for money to make the initial deposit your contractors require. This is often 50 percent of the total cost of repairs. Gather repair estimates from the contractors and submit these to your mortgage company. It will cut a check for the total and you can distribute the funds to the various contractors to get repairs underway.
When the work is finished or nearly finished, the mortgage holder will dispense the rest of the money to pay for the work. Your mortgage company may require an inspection to verify that the work was done properly before it will make the final payment.
Personal Property Versus Structure
Your mortgage company only has an interest in the physical structure of your home. It’s possible that the same event that damaged the structure also damaged your personal property, such as your furniture. Some insurance companies will issue a separate check made out only to you to cover the cost of replacing personal property.
Other insurers will issue one check for total damages. In this case, you should request your mortgage company issue you a check for 100 percent of the amount of the settlement that is supposed to cover the personal property insurance payment.
Cynthia Myers is the author of numerous novels and her nonfiction work has appeared in publications ranging from "Historic Traveler" to "Texas Highways" to "Medical Practice Management." She has a degree in economics from Sam Houston State University.