I have been keeping Los Angeles in my thoughts during these January 2025 fires – it is a difficult time for so many.  I hope that you and your loved ones are doing well amidst it all.

Because of the devastation, I have been asked by a number of Lenders what happens with a property when it undergoes a loss, what happens with the insurance money, etc.

Therefore, I am hoping this newsletter clarifies the process and procedure regarding insurance payments, when you are listed as the mortgagee/loss-payee on the property insurance. This is what typically happens:

Mortgage Payments & Insurance Payments:

When the property undergoes a loss, such as by the fires, the borrower is still required to make their monthly payments, this obligation does not go away.  Should the insurance company release any insurance funds, any insurance payment will be made out to both the homeowners and the listed mortgagee/lender. This ensures that the lender is properly involved in the process of managing insurance funds.

Step-by-Step Process:

1. Insurance Adjuster’s Role: The insurance adjuster determines how much is owed and cuts a check, which is made payable to both the homeowner and the mortgage company.
2. Fund Allocation: This check is sent to the property homeowner who signs the check and delivers it to the Lender, as the second signatory on the check.
3. Escrow Account Creation: The Lender/loss-payee sets up a dedicated escrow account for holding the insurance funds for that specific property and deposits the check into the escrow account.
4. Rebuilding Process: As the homeowner works on rebuilding the property, the Lender would release the necessary funds from the escrow account in stages.
5. If the Owner Does Not Rebuild:  If the homeowner decides not to rebuild, and wishes to cash out on the insurance funds, the check is placed into an escrow account as noted above.  The lender would then pay off the loan balance, and any remaining funds would then be distributed to the homeowner.

Important Notes:

• Borrower Obligation to their Mortgage:  In the event of a property loss, the borrower is still obligated to make their monthly mortgage payments. 
• All Parties Must Sign: All relevant parties must sign off on the transactions to ensure proper handling of the funds.
• Handling the Insurance Check: The insurance company issues the check directly to the homeowner, who then signs it over to the lender. The lender needs to sign and deposit it into an escrow account.
• No Commingling of Funds: Insurance payments would be deposited into a dedicated escrow account specific to that case.  It cannot be mixed with another Trust Account, or other Escrow Accounts.
• Assistance Through Each Step: Any assistance on this process can be gotten from White Hat Servicing, if your loan is being serviced by them.

Conclusion:

This process ensures transparency and protection for both the lender and the homeowner. If you have any questions or need further clarification on how to handle these transactions, feel free to reach out and I’ll be happy to assist if possible.  Speaking with your Insurance Broker is also advisable as this is their realm of expertise.

Thank you for your continued trust and partnership.