If your property has been damaged, and your insurance company has approved your claim, the last thing you want to do is go back and forth with your mortgage company about when and how you can receive the money. However, many home and business owners find themselves in exactly this situation: forced to wait or jump through hoops before their lender will release the money they need for essential repairs — especially when the claim is significant.

Read on to learn more about why these hold-ups occur, and what your rights are if your mortgage company isn’t responding to your requests in a timely manner.

How long can a mortgage company hold an insurance check?

While state law determines when mortgage companies must release insurance checks, it’s common for them to be held until repairs are completed. 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 release the insurance payment in whole or in part within 10 days if you’ve provided them with evidence that you’ve complied with their requirements for payment release.

For more information about this topic, please check out our guide to Insurance Company Response Time.

One couple’s struggle to receive their insurance check

I recently met with a couple whose house was partially blown away in a tornado. 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 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. Nearly a year later, the mortgage company still refused to release the funds that Mr. and Mrs. Garcia needed to begin repairs to their property, and the condition of the property continued 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.

What happens if the mortgage company still won’t release the insurance check?

If the mortgage company doesn’t 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.

When do you need an attorney to get your insurance check back?

While you may ultimately need an attorney for guidance, here are the steps you can take to protect yourself and ensure the best possible outcome.

  1. Contact the mortgage company:
    • Reach out to the mortgage company directly. Speak with a representative to understand the reason for the delay. Sometimes, a simple communication can resolve the issue.
    • Request a clear timeline for when the check will be released.
  2. Review your policy:
    • Carefully review your insurance policy to understand the terms and conditions regarding claim payouts.
    • Ensure that you have complied with all the requirements for claim processing.
  3. Document everything:
    • Keep records of all communications with the mortgage company, including dates and summaries of conversations.
    • Document any costs incurred due to the delay, such as additional living expenses or increased repair costs.
  4. Send a formal complaint:
    • If initial communications do not resolve the issue, send a formal written complaint to the mortgage company.
    • Clearly state the problem, reference your policy, and request prompt action.
  5. Consult with a public adjuster:
    • Consider hiring a public adjuster. They can provide assistance in dealing with insurance claims and negotiations.
  6. Seek legal advice:
    • If all else fails, consult an attorney who specializes in insurance law.

Merlin Law Group can be your advocate

For over 30 years, Merlin Law Group has been representing insurance policyholders throughout the U.S. Our lawyers are licensed to practice in 25 states and have the industry experience, knowledge, and savvy to achieve a truly successful outcome for your claim.

If your mortgage company isn’t releasing your insurance payments in a timely manner or if you need guidance on insurance claims and payments, don’t hesitate to contact one of our experienced insurance attorneys with any questions.

More questions about mortgage companies and insurance checks

Why are insurance claim checks made out to you and your mortgage company?

Insurance companies generally include the mortgage company, along with the property owners, on claims payments checks because both parties 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.

What documents do mortgage companies usually require to release an insurance check?

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 construction/repairs with a contractor or builder. Other commonly requested documents include:

  • Your mortgage number
  • Contractor estimates
  • Contractor W-9 Forms
  • Contractor licenses
  • Receipts
  • Paid partial invoices for completed repairs

Typically, mortgage companies request these to show that the property owner is actively attempting to repair the property.

However, other mortgage companies are more difficult. Some mortgage companies may even violate the law to this extent.

Where can I learn more about insurance claims?

If you still have questions about insurance claims and your rights, we’ve created several ebooks to help you navigate the world of insurance law: