I recently met with a couple whose house was partially blown away in a tornado a year ago. I’ll call them Mr. and Mrs. Garcia. Mr. and Mrs. Garcia did everything they were supposed to – they promptly filed the tornado claim with their insurance company, they took photos of the damages, hired a public adjuster to help them handle their claim, and more.

After much delay, the insurance company finally determined it owed Mr. and Mrs. Garcia over $70,000.00 for their damage. The insurance company issued the claim check for the full amount and put their mortgage company as a payee on the check. The check was sent directly to Mr. and Mrs. Garcia’s mortgage company. That was August of 2017. The mortgage company continues to refuse to release the funds that Mr. and Mrs. Garcia need to begin repairs to their property, and the condition of the property continues to decline.

Mr. and Mrs. Garcia tried everything they could think of to get the mortgage company to release the funds – they cannot begin to make their repairs without them – but the mortgage company refuses to do so. Mr. and Mrs. Garcia have grown frustrated and tired of dealing with this issue without receiving any information from the mortgage company on what else is needed, or why it continues to refuse to release all or a portion of the claim payment. They just want answers and to fix their home.

This problem is so common. Over the past years, I have represented people and companies with insurance claim disputes across the country, and mortgage companies continuously act the same way – they fail to notify the property owners why the funds are withheld, they fail to provide the property owner with steps to take necessary to release funds, and ultimately the claim payments get stuck in limbo.

Clients and potential clients contact our office with these questions nearly every day.

Insurance companies generally include the mortgage company, along with the property owners, on claims payments checks because both (property owners and mortgage company) have an interest in the property and its condition. In theory, the mortgage company wants to protect its asset/interest and ensure that the property owner uses the insurance payment to repair the property to pre-loss condition.

Resolving this issue is simple with certain mortgage companies. Some mortgage companies simply require the property owner to provide them with a copy of a repair estimate or a contract for repairs/construction with a contractor or builder, or other document(s) (i.e., paid partial invoice for completed repairs) that shows the property owner is actively attempting to repair the property. Other mortgage companies are more difficult. Some mortgage companies may even violate the law to this extent.

The Texas Insurance Code contains a section devoted entirely to insurance proceeds held by a mortgage company or lender pending repairs of real property. That provision within the Texas Insurance Code states that if a mortgage company holds all or part of the proceeds from the insurance claim payment pending completion of repairs, the lender shall “notify the insured of each requirement with which the insured must comply for the lender to release the insurance proceeds.” The mortgage company is required to provide this information to the property owner within 10 days of receiving the insurance payment.

This means that if the mortgage company has not notified you (if you are the insured property owner) of its requirements to release the funds, then technically the mortgage company may have violated the Texas Insurance Code law.

Additionally, if you request the mortgage company to release the insurance claim proceeds, or a portion, the lender must within 10 days release the insurance payment in whole or in part if you’ve provided them with evidence that you complied with their requirements for payment release. If the mortgage company does not release the insurance claim payment, they must provide notice to the insured that,

explains specifically: the reason for the lender’s refusal to release the proceeds to the insured; and each requirement with which the insured must comply for the lender to release the proceeds.

If the mortgage company fails to properly provide notice or release the funds, the Texas Insurance Code states that the insured property owner may be entitled to interest of 10% per year on the insurance payment held by the lender.

The important thing to remember here is to keep everything in writing. It may be helpful to send a written letter to the mortgage company asking them what information and documentation they specifically require in order to release the insurance payment. Keep copies of every correspondence with them, and hold them accountable for their obligations and duties under the law.

Do not hesitate to contact an experienced insurance attorney with any questions or if you need guidance on insurance claims and payments.