Can the bank hold more than my outstanding principal from my insurance check? Q and A

Q: I have a situation where the check from the insurance company is more than three times the amount of my outstanding principal balance. If my bank releases the check in thirds, it means that they will essentially hold back an amount that is more than twice my principal amount. Does my bank have the right to withhold any more than my outstanding principal amount?

A: Chris, before I answer your question you should know I am a licensed Public Insurance Adjuster in Florida, and I am not licensed California. Here at Maximum Insurance Adjusters, our clients have encountered several scenarios that seem to typify general mortgage company standards with relating to insurance company settlement checks.

Typically, a homeowner in good standing with his/her mortgage company and little to no history of delinquent payments, will have the full amount of their settlement check released to them by their mortgage company, as long as the settlement check is for less than $20,000. If the homeowner is not in good standing with the insurance company then they may choose to hold all settlement checks, regardless of the amount. A settlement check for a sum larger than $20,000 is very often held by the mortgage company until a licensed contractor’s or roofer’s signed contract is presented to them. At that point, they frequently either release the full amount or issue a check for 1/3 of the contractor’s or roofer’s contracted amount for the repairs. The money for the repairs is often dispersed in thirds as the work is performed until the entire contracted sum is released and all the work is completed.

These procedures do not appear to be related to the principal balance of the mortgage. Consequently, it has been our experience here at Maximum Insurance Adjusters that as long as a homeowner has a mortgage (regardless of the amount of the mortgage) the mortgage company disperses funds according to the repairs. Once the repairs are done all remaining funds are usually released to the homeowner, as long as you are current on your mortgage payments.

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