Feb
11
2010

Protect Your Sinkhole Claim from Your Mortgage Company

My mortgage company is identified as an additional insured on my homeowners insurance policy. How does this affect my sinkhole claim?

Your mortgage requires you to insure the mortgaged property. Therefore, most homeowners insurance policies identify the mortgage company or mortgagee as an additional insured. Most standard homeowners insurance policies provide that if a mortgagee is named in the policy, any loss payable under the real property coverage of the policy shall be paid to the mortgagee and the policy holder “as interests appear.” This means that your mortgage company has an interest in the proceeds of the insurance policy up to the balance of the mortgage. Your insurance company is therefore contractually obligated to protect the interest of the mortgage company when it pays your claim.

For example, let”™s say the balance of your mortgage is $60,000 and your mortgage company is listed as an additional insured/mortgagee on your policy. Eventually, you and your insurance company agree to settle the claim for $100,000. In this case, the insurance company would then most likely issue two checks; the first check would be payable to you and your mortgage company in the amount of $60,000, and the second check would be made payable to you (and your attorney, if one is involved) in the amount of $40,000

Frankly, many mortgage documents (the mortgage itself or the promissory note) do not deal with this issue well. Many of these documents were drafted by out-of-state lawyers who would never have anticipated situations such as this. The language in these agreements frequently deals with less complicated repair issues (e.g., fire, flood). Sinkholes, because of their repair nature, involve a lot of other issues.

Bottom line: do not permit a loan officer to tell you what to do, unless they have a basis to do so. If you want to repair the home and not pay down the mortgage, you should be able to do so. If you want to pay down the loan and not repair, you should be able to do that as well. But do not allow the bank/lender to tell you that you have to do something because “it”™s our policy that”¦”

Read our tips on filing a sinkhole claim.

Have a burning question you”™d like to ask about sinkholes? Let us know.

4 Responses to “Protect Your Sinkhole Claim from Your Mortgage Company”

  1. Margarita Rodriguez says:

    Earlier I asked this question but the e-mail used is not working. How can I approach or which is the best way to get the mortgage company to agreed to bring down the payoff of my home if I decide to it off as oppose to repairing the sinkhole activity found in my home?

  2. K. Neuner says:

    Bottom line: do not permit a loan officer to tell you what to do, unless they have a basis to do so. If you want to repair the home and not pay down the mortgage, you should be able to do so. If you want to pay down the loan and not repair, you should be able to do that as well. But do not allow the bank/lender to tell you that you have to do something because “it”™s our policy that”¦”

    My question is then, what do I do in a situation where the BANK is telling me that they will not accept a partial paydown of my mortgage with the settlement check from a sinkhole claim and they insist that either (1) I come up with the remaining $50,000 to pay off the entire mortgage, or (2) make repairs. What do I do in this case where I DO NOT WANT TO MAKE REPAIRS and want to pay down my mortgage? Mortgage is #229,000 and settlement check is $180,000 and BANK will not accept this…I am totally confused right now. Please help.

  3. Jose R. Marquez says:

    What I have to do? The cost of repair is $132,390 The balance of the loan is $205,000 According to actual prices here in 34473 my house has a $97,000. Coul I ask the insurer to repair? My condition is that Bank of America lower the loan for the price in the market and keep paying?

  4. mbarfield says:

    You do not have to give the money to your bank to lower the loan. In fact, most banks and insurance companies wouldn’t let you do that even if you wanted to. Bank of America will usually require that you do fix the house. They will not just take the money and not allow you to repair. If you reach a settlement with the insurance company you can negotiate with Bank of America how to repair the house so you can fix it the way you want. If you want to fix the house, do not settle with the insurance company. Just tell them you want them to repair it for you and they will. You only need to find a contractor to do the work and sign up with them. The contractor will do the work and submit their bills to the insurance company who will pay for everything. Bank of America will not stand in the way of the repairs if that is what you want to do. If you would rather settle the case and fix it yourself, you will likely need a lawyer to help you. Lawyers work on a contingency fee which means they only get paid out of the settlement if there is one. You do not have to pay the lawyer out of your own pocket.