Insurance Check Made Out to You and Your Mortgage Company: How Repair Money Gets Released

If you have a mortgage, your lender is almost always listed on your homeowners policy as a loss payee, so the insurance check for damage to the house is made out to both of you. You endorse it, your mortgage company endorses it, and the company may release the money in stages as the repairs get done.

I'm Dennis Mark Interdonato with The Dennis Mark Group at Keller Williams Realty Ocean Living. After a storm or a fire, it can come as a surprise that the check you waited for can't go straight into your account. Whether your home is in Monmouth County, Ocean County or anywhere else in New Jersey, here's why, what usually happens next, and the questions to ask before any contractor starts work.

Why is your mortgage company on your insurance check?

Because the house secures the loan. The New Jersey Department of Banking and Insurance (DOBI) explains it in its homeowners guide: if you have a mortgage, your lender will require you to carry homeowners insurance and to name the lender as a loss payee, and the lender is then "listed as a co-payee along with you on any checks the insurer writes to pay for damage to the dwelling."

The Consumer Financial Protection Bureau says the same thing from the mortgage side: "Many mortgage agreements require insurance checks to be made out to both you and the mortgage company or servicer." Your servicer is the company you send your payments to, which may not be the lender that made the loan.

Two related points from DOBI's guide are worth knowing:

• You aren't required to buy your insurance from a company your lender recommends.
• If your policy lapses, the lender may buy "lender placed" coverage and bill you for it. DOBI says it's generally more expensive and only protects the lender's interest.

How does the repair money get released?

The CFPB says your mortgage company "could release portions of the money as repair work progresses." In practice, each servicer sets its own process, and it depends on your loan and the size of the claim. So before anything else, ask your servicer for its requirements in writing:

• Where do you send the endorsed check, and does it go into a separate account?
• What documents does it need: the adjuster's estimate, your contractor's signed contract, anything else?
• Does it inspect the work, and how many payments does it release, at what stages?
• How long does each release take once you send what it asked for?

The CFPB's disaster guidance also suggests checking with your insurance company and your servicer about how and when the money is distributed before you hire contractors. That matters, because your contractor's payment schedule has to fit the servicer's release schedule, or the job stalls.

How do you protect yourself while the money moves?

• Get lien waivers. The CFPB suggests requesting a mechanic's lien waiver from your contractors at the beginning and for each phase of the project. It's a document saying the contractor has been paid and has no further right to place a lien on your property.
• Don't pay the whole job up front. New Jersey's Division of Consumer Affairs says the law prohibits a home improvement contractor from demanding the final payment before the work is completed. Here's what to check before you hire a contractor in New Jersey.
• Keep every receipt and every note. DOBI says to save receipts for temporary repairs and to keep written notes about conversations with the adjuster.
• Keep paying the mortgage. If the damage has made the payment hard to keep up with, the CFPB says to call your servicer right away and ask about options.

What if you disagree with the insurer or the servicer?

For the claim itself, DOBI says to try to resolve it with the company first. If that fails, you can contact DOBI at 609-292-7272 or 800-446-7467 or file a complaint online, ask the company's internal appeals panel to review the claim, use the appraisal clause in your policy, or hire an attorney.

For problems with your mortgage company, including trouble getting help after a disaster, the CFPB takes complaints at consumerfinance.gov/complaint or (855) 411-2372.

What if you'd rather sell than rebuild?

That's a real option, and it's one we put next to the repair plan with the numbers for each. Before you list, talk with your insurer, your servicer and your attorney about the claim money still to be paid, because the contract has to deal with the condition of the house and with what happens to that money. The sale pays off the mortgage at closing either way.

I don't handle or negotiate your claim. What I bring is a builder's read on the damage, as a former New Jersey home builder and residential remodeler, repair estimates from trades I know, and a clear look at what the home is worth as-is and repaired. How I plan around a change like this is on my life events page, and the Life Events Guide lays out the order of operations.

Frequently Asked Questions

Why is my mortgage company on my insurance claim check?

Your lender is named as a loss payee on your policy, so DOBI says it's listed as a co-payee on any checks for damage to the dwelling. The house secures the loan, so the lender wants the repairs done.

Can I deposit an insurance check that names my mortgage company?

Not on your own. Both payees have to endorse it. Your servicer tells you where to send it and how it releases the money, which the CFPB says may happen in portions as the work progresses.

What if my servicer is holding the repair money too long?

Ask in writing what it still needs and when the next release will happen. If it doesn't resolve, you can submit a complaint to the CFPB at consumerfinance.gov/complaint or (855) 411-2372.

Do I have to buy homeowners insurance from the company my lender recommends?

No. DOBI's guide says you are not required to buy insurance from any company your lender recommends.

This is general information, not legal, tax or lending advice. Your policy, your mortgage documents and your servicer's written instructions control.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• How a storm damage insurance claim works in New Jersey
• Where you live while your home is repaired
• Have a question this didn't answer? Send it to Dennis Mark and it may become the next article.