More On Mortgages

I talked to my friend Steven and he talked to an attorney about what folks could do in Florida if they were behind on their mortgage and had an insurance claim. The answer: not much. If the mortgage documents allow the mortgage company to use insurance funds to either catch up on the past due payments or to apply those funds to the unpaid balance of the mortgage, then apparently the State of Florida will support whatever the mortgage company wants to do in that regard. Steven is up in arms and you should be too. 

This raises another question; can the mortgage company use these funds to pay down the principal if the loan is in good standing? I don’t know, but I would be interested in finding out.

In the meantime, Steven’s question deserves an answer: what’s the point of paying insurance if you’re behind on your payments and won’t be able to use the insurance money to affect repairs?

Stevens’s conversation with the attorney did raise an interesting point that you’ll want to keep in mind if you’re in this situation and may be an answer to the question. In a word: contents. The mortgage company does not have the right to insurance proceeds for contents or additional living expense and with one big proviso. The proviso is provided the insurance company does not commingle dwelling, contents and ALE funds into a single check. If they do the mortgage company will presume all the funds go to the dwelling. So if you have a claim and are in this situation, insist the insurance company break out these payments into separate checks. It will save you lots more heartache down the road.

Also, in case your thinking like I was, why not stop paying the homeowner's premium, let the bank put forced place coverage on your house and buy a contents policy on your personal property, that would do the trick and maybe save some moola. Right? Wrong. I spoke with a insurance agent friend of mine. It turns out that you can't buy a contents only policy to cover property in a house you own and occupy.

Bill

Mortgage Upside Down Prepare For Insurance Problems When You Make A Claim

I was talking to my friend Steven today. He was up in arms because a potential client of his had their house foreclosed and it knocked him out of a deal. Seems this person had an insurance claim and was paid by their insurer. The mortgagee’s name was included on the insurance check, which by the way is standard procedure. The homeowner then forwarded the check to their mortgage company for endorsement: more standard procedure. The homeowner was behind on their payments and when the mortgage company got the check, they cashed it, used the proceeds to pay down the overdue payments and then promptly foreclosed: unfortunately more standard procedure still.

 

Let this be a warning to everyone who is behind on their mortgage and is unfortunate enough to have an insurance claim. The chances are you will not get your mortgage company to release the insurance monies to you. They will instead use the funds to pay down the what you owe them leaving you with an impaired property. You may very well find yourself in a double bind because your insurance company can demand proof of repairs as a precondition to renewing your property insurance. OMG!

You might be asking yourself: “what’s the point in paying insurance if I can’t use the proceeds to repair my home?” Steven would be asking that question right along with you and it’s a good question, particularly in South Florida where premiums are sky high. What’s the unfortunate homeowner to do? I’m not an attorney, so my first bit of advice is to talk to one. Find out what your rights are.

Also, find out if you hire a contractor whether the bank is required to release funds to the contractor in lieu of applying funds to the balance of the mortgage.Or any other method of getting access to your money. And yes it is your money and your house...at least until the bank takes it over.

Let me know what you find out.

Bill