I’ve heard that when the insurance company pays you for a sinkhole claim, the mortgage lender makes you repair the home with the money. Is this true?

The answer is simply that it depends on your lender and its policies, the amount and type of damage to your home, and how much you owe on the principle.

Every lender has a different policy, but it is true that a large portion of the lenders will make you use some, or all, of the money to repair the sinkhole damage to your home unless you have enough to pay off the mortgage in full. Other lenders will allow you to put some or all of the money toward your mortgage, but very few lenders will simply allow you to keep the cash for yourself. The lender has just as much of an interest in ensuring that your home’s resale value is protected as you do.

The question you will need to answer for yourself is whether you want to do the repairs or whether you want to try and live with the damage. As some damage by sinkhole activity is less severe, some people do some of the cosmetic sinkhole repairs and leave the subsurface alone. This drives property insurance companies crazy, but that’s their problem – it’s your house and your money. If you want to do the sinkhole repairs, make sure when you submit the payments to the mortgage company that you clearly state your intentions (repair vs. pay down mortgage). Most mortgage companies have two different departments, one for escrowing money for repairs and another for paying down your loan. If the money goes to the wrong department, it can be a huge hassle.

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