Why do they do this, and how do I deal with it?

June 16, 2006 6:17 PM

I had an insurance adjuster come by my house to look at damage caused by a recent hail storm. During a follow-up phone conversation, she mentioned that the checks would be made out jointly to me and my mortgage company. Why do they do this?

It seems inconvenient, since my mortgage company is in California, and I am in Indiana. How do deal with this is puzzling me, since I will need access to the money to pay contractors, etc. to get the damage repaired. Anyone ever dealt with this and can give me some pointers?

posted by pjern to work & money (9 comments total)

Basically because the bank is a bigger legal threat than you are.

Let's say you took their payment for hail damage, pocketed it, and bought a Ferrari. Now your house is worth $200K (because of the unrepaired hail damage) and your mortgage is $300K, so you walk away from the mortgage. The bank is pissed. They will sue the insurance company.

By making sure the bank has to endorse the check, the insurance company is making sure the money gets used to repair the bank's asset, the house. What will happen is that the bank will want you to endorse the check, send it to them, they'll endorse it *and deposit it*, and they'll make out checks directly to the vendor who repairs the house. This keeps you from getting your greedy fingers on the money.

Who wins? The insurance company wins, they don't get sued. The bank wins, their house gets repaired. You lose, because it's a pain in the ass.
posted by jellicle at 6:41 PM on June 16, 2006 [1 favorite]

Would you get any remaining balance returned to you?
posted by crewshell at 7:15 PM on June 16, 2006

Unfortunately, the co-signed check is not a guarantee that the money will be applied toward repairs. As some people in NOLA have been discovering, sometimes the bank can be allowed to take the entire check and use it to pay themselves instead. Before the check is cut, confirm with the mortgage holder how they intend to use it.

His bank applied the [$250k insurance] check to his $600,000 mortgage, leaving him with an outstanding note of $350,000 and no money for repairs... [B]anks are required to put insurance checks into an escrow account, disbursing the funds as repairs are completed. An exception is allowed if the home is in an area where rebuilding has been prohibited.
posted by nakedcodemonkey at 7:26 PM on June 16, 2006

So how do I pay the contractors? They'll want some percentage upfront, I'm sure.
posted by pjern at 7:59 PM on June 16, 2006

They do this because, due to the mortgage, the bank owns your home as much as you do. It's the same reason vehicle insurance checks are made out to the lienholder and the car owner jointly.
posted by rhapsodie at 8:04 PM on June 16, 2006

So what would happen if I wanted to do some of the repairs myself?
posted by pjern at 9:02 PM on June 16, 2006

Based in Texas, so this might not apply to your area, but give it a shot.

Talk to a few contractors, decide on who you would like to do the work, then contact the Insurance Company and tell them you have decided on who will do the repairs, and you would like the check re-issued to you and the contractor.

In Texas, the majority of Insurance Companies will do this, they are required by law to protect the leinholders interest, but by naming the contractor as the 2nd party on a check, they meet this obligation, as this makes it where you have to get the home repaired (I know, thats not neccesarily true if you find a crooked contractor).

If you decide to do some of the repairs yourself, the contractor will owe you a portion of the check back. If you do ALL the repairs, you should be able to get the adjuster back out and re-issue the check with you as the sole payee.

Be forewarned, if you keep the initial check, the worse case scenario above about the leinholder applying the check to the note is not your only worry(I've seen it happen a couple times). If your lien holder does not have a local branch, it can take weeks or even months (6 months was the longest I've personally seen) for them to return the endorsed check to you. Also, for the most part, they will not endorse the check until repairs are completed and they have verification of the repairs.
posted by Relly70 at 1:55 AM on June 17, 2006

>So what would happen if I wanted to do some of the repairs myself?

You could try opening your own proprietorship. It's ridiculously cheap to do in most places. Spend the money to change the business name from your own to something else like "Joe General Repair Service" or whatever. :-) Just an idea...
posted by shepd at 9:13 AM on June 17, 2006

I had a roof repaired in Austin, TX after a hail storm. An inspector came out, checked out the roof, said it needed to be replaced. They cut me a check about a week later, made out to both me and the mortgage company. I mailed it to the mortgage company (after calling them and talking to them about it) to be signed - it was promptly sent back signed. I cashed the check before work ever began on the house. The roofers I worked with didn't want any money up front -- in Texas, they can slap a lien so fast on your house for unpaid work, it'll make your head spin.
It all worked out just fine for me.
posted by j at 10:06 AM on June 17, 2006