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March 24, 2023
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Why is my insurance claim check made out to me and my mortgage company? Mortgage Company, Homeowner and Contractor; an Unwitting Entanglement Clarified
Your mortgage company owns your home and you don’t. And this can be a good thing in this situation. The truth of the matter is that your mortgage company still has a vested interest in your home until you pay off the loan. Since the lender is the owner of the home, having their name on the check really does make sense.
When it comes to situations like repairs and damages, you really do want them to be involved. Sometimes having the mortgage company wanting the same thing as you, a decent repair, helps when having to stand your ground if there is a concern of shoddy work.
Imagine that the check was only made out to you. Now imagine the contractor states that the repairs are completed, and they are expecting payment. You inspect the work with your “trained” eye and you’re not quite convinced that the work was done with quality. This is where it helps to have the mortgage company on the check.
To ascertain damage and repairs, they’re likely to send a field investigator to do an inspection. Field investigators are sent by the mortgage companies and/or insurance companies with the goal of assessing the damage and the completed repairs. Note that field inspectors are different than home inspectors, as they are hired by different stakeholders. Don’t let this frighten you.
Think of it as the lender sending out their bloodhound to investigate independently the damage. If they don’t feel the work was done properly, they won’t sign either. It keeps the contractor motivated. The signature is an extra layer of fraud protection and it can benefit you as well.
You are an honest homeowner. But some aren’t so transparent, so having the mortgage company on the check helps keep the less than upfront homeowner honest. There is no one standard procedure when it comes to paying for home repairs from an insurance company.
There are instances when an insurance company makes the check solely to the homeowner. For some, this can be tempting. The homeowner might pocket the funds and decide that the house is fine with a do-it-yourself repair.
You say to yourself, ok, but I’m the homeowner and I trust my own renovation and home repair work. But what if you decide to sell the home and the potential buyers ask about specific damage since they noticed that there was an area that didn’t fit with the rest of the home’s “vernacular”?
If they ask, you must disclose. And it may suddenly not seem like the DIY route was the best way to set up the home for the most successful sale. Aside from that keeping funds that didn’t go towards expenses is dishonest. And we know you’re not a dishonest homeowner.
The caveat to that is if you own the home outright. The insurance company would pay you directly and you can choose not to repair the home. But since we are discussing why the mortgage company is on the check, this is obviously not one of the scenarios.
If you and the mortgage company both need to sign the check from the insurance company before handing it over to the contractor. So how does the mortgage company endorse the insurance check? If the mortgage company has a local branch in your area, a simple drive to their location should suffice. Otherwise, the check would need to be sent through the mail, along with the insurance adjustment report.
The homeowner’s name on the check helps give “boots on the ground” negotiating power during the repairs.
Now, the homeowner is also a powerful force and not to be discounted. You, unlike the mortgage company, have both a financial and emotional investment in the health of your home. It is after all your domicile. Make sure to ask lots of questions of both the insurance adjuster and the contractor.
Review the insurance report on what they state is to be fixed. Know that the contractor will most likely ask to see the insurance claim as well. This is not to scam you! Just think if you had to go into a project and buy materials and hire people, but didn’t really have an idea of the scope and size of the project. It would be like hitting a moving target. You have every intention of keeping our house a home, and one day paying off that mortgage. So, don’t be afraid to ask lots of questions and learn the process.
The contractor wants to do quality work and should be paid appropriately for it. They are not concerned with who the check is made out to.
We have all heard horror stories of contractors not keeping their end of the bargain, skipping out before completing the work and the list goes on. But most want to do a good job and they deserve to get paid for their craftsmanship. “What does this have to do with the mortgage company on my insurance check?” If there is any disagreement between the homeowner and the contractor, the mortgage company (or the insurance company) can step in and resolve it.
Remember earlier, the mention of a field inspector? They are independently contracted by the mortgage company to assess the damage. When the field inspector reports back, the company can decide to pay in draws to the contractor. Basically, it’s paying the contractor once certain items have been checked off the list. This motivates the contractor to continue working to completion. But it can also protect the contractor because they know that it’s not at the discretion of the homeowner to decide if they will get paid and when.
You may encounter a situation where the contractor asks the insurance company to pay them directly. But typically, the check will be made to you and the mortgage company. The lender may park the funds in escrow while repairs are being made.
There’s an advantage to understanding the process. In the end, it lends itself to becoming a savvy homeowner. If you have ever had an auto insurance claim, you may have noticed a similar situation if the vehicle is financed. Navigating the insurance process for home repairs is no exception!
Now you know why the mortgage company is also listed on the check. Even more so, now you can see the benefit of the insurance company making the check payable to both you and the mortgage company. It’s wonderful to be knowledgeable and have little life hacks to refer to.
Know that you ultimately care more about what happens to the home than anyone else. Don’t be afraid to ask questions to the contractor or the insurance company. Communicate with each stakeholder and be accessible if they need to contact you.
Know that the norm is that the contractor wants to do quality work and that the horror stories on home repairs are the exception, not the rule. Having a mortgage payment is no fun, but having the mortgage company also be a second set of eyes on repairs is helpful. I hope this blog post will help you understand Why is my insurance claim check made out to me and my mortgage company?
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