Homeowners Insurance Policy Clause Reroutes Claims Checks

A little-known clause in many homeowners insurance policies can prevent the policy holder from directly accessing the funds from their claims. Instead of making the check out directly to the homeowners insurance policy holder, the insurance company makes it out to the bank that holds the homeowner’s mortgage. This clause can leave homeowners waiting on money that they need, either to start much-needed repairs or to reimburse them for up-front costs.

Homeowners Insurance And The “Mortgagee Clause”

This clause in a standard homeowners insurance is known as the “mortgagee clause.” This clause allows the bank that holds the mortgage to take control of the funds from the homeowners insurance claim. Under this clause, the bank can review and sign any insurance claim checks, or hold the funds in an escrow account until the repairs are completed. The clause protects banks from homeowners who may receive claim checks and fail to initiate repairs, but it also leaves honest homeowners waiting for weeks or months for the funds they need and deserve.

Delays In Homeowners Insurance Claims Hurt Residents

A major example of how these delays in homeowners insurance claims can hurt policy holders can in the aftermath of Hurricane Sandy in 2012. Tony Kono, a New Jersey-based public relations executive, found that his home had suffered flood damage totaling more than $85,000. When he received his homeowners insurance claims check, he found that the check had also been made out to his Illinois-based mortgage holder. The bank refused to endorse the check until Mr. Kono sent them an estimate for the repairs. In the meantime, he and his family spent 11 days without heat or power.

Banks Can Keep Homeowners Insurance Claims In Escrow

In another instance, this one in California, the homeowners insurance check went directly to the bank without the homeowner’s knowledge. Julie Reynolds’s home suffered more than $42,000 in flood damages. After she received an $8,000 emergency check from her homeowners insurance provider, the company sent a check for the balance of the damages straight to her mortgage holder, who held the funds in an escrow account. Although she had the cash available to cover the costs, she described the process of getting the bank to reimburse her as “like pulling teeth.”

Source: CBS Marketwatch

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