Many homeowners will be faced with damage to their property at some time requiring them to file a claim with their insurance company. This article will review some of the concerns and processes that a mortgagor needs to consider when helping a borrower through their claim and repair process, as well as some important questions to keep in mind.
Is there an active claim, or has damage occurred that should have a claim filed before the loan closes?
If the answer to either of those questions is yes, then please pause and seek guidance. If Gold Star closes a loan on a property that cannot legally be occupied due to recent damages, or is not in good repair for the same reason, it could present problems very soon after closing. These are especially important questions to be asking if the property was in an area affected by extreme weather such as high winds, hail, heavy rain, or flooding in the last 60 days.
Were you contacted by a borrower with a claim after the loan closed?
Typically when a borrower contacts us about a claim it’s because they need our endorsement on a two-party check sent to them by their insurance company. Now that we are a lienholder on the property we have an obligation to reasonably ensure that those funds are going to be used to repair the home. In many cases we will not be able to just endorse the check and return it to the homeowner. In this situation please have the borrower contact Servicing directly for further assistance. They can be reached by phone at 800-201-5626, option 3, or by email at firstname.lastname@example.org. If the loan was sold to a new investor (verifiable through the Payment Portal) please refer the borrower to that new organization, even if Gold Star is named on the check.
What do we need to look at before we can endorse a check?
The Servicer of the mortgage needs to know that the insurance funds are going to be used to repair the property. To begin to achieve that goal they will need to review some or all of the documents listed below, though this is not necessarily a comprehensive list. Which documents are required may change based on the loan type, amount of the claim, unpaid principal balance, details of the loss, and the state in which the property is located.
- Insurance Adjuster’s report
- Insurance claim check
- Contractor’s estimate / Scope of Work
- Contractor’s proof of insurance
- Contractor’s proof of licensure
- Contractor’s conditional lien waiver
- Repair Affidavit
- Building plan / Architectural drawings
What does the process look like from there?
In many cases, after reviewing the required supporting documents, a check can be endorsed by the Servicer and returned to the borrower. But sometimes the servicer will need to hold those funds in a restricted escrow account and issue smaller disbursements over time as repair work is completed. While every servicer approaches this process a little differently, usually a quarter or a third of the total claim amount will be released up front payable to the borrower and the contractor. This will allow repairs to begin. Future disbursements will be made at scheduled intervals after confirmation that a certain percentage of the work has been completed.
Other details to remember:
Homeowner’s Insurance is in place to cover the cost of restoring the property to pre-loss condition. For example, if new siding is damaged by a storm then an insurance claim should cover the cost of replacing that siding. But if the siding was already old, cracked, and in need of replacement an insurance claim will very likely not cover the repair cost in full. It may even be denied entirely.
We cannot work with a Public Adjuster. Some borrowers will hire one to act as their advocate when working to settle an insurance claim. Their role is strictly to help the insured get as much as their policy allows, not to work with the mortgage servicer over the repairs administration process. We should never, under any circumstances, recommend that a borrower hire a Public Adjuster.