After an insurance claim, you might expect to use the payout immediately for home repairs. However, if you have a mortgage, your lender also has a stake in the property. Since your home is collateral for the loan, they want to ensure the money is used for repairs, not other expenses. That’s why insurance checks are often made out to both you and the mortgage company.
To access the funds, you need your lender’s endorsement. This process varies by company but typically involves submitting documents, undergoing inspections, and following specific disbursement steps. Knowing how it works can help you avoid delays and get your repairs started quickly.
Homeowners can navigate this process successfully by understanding the lender’s procedures, following the required steps, and being prepared with the right documentation. The process often starts with contacting the mortgage company, endorsing the check, and sending it for approval. The claim size determines whether funds are placed in escrow and released in stages, with inspections required before full disbursement. Proactive homeowners can avoid delays by ensuring all necessary paperwork—such as contractor invoices and a certificate of completion—is submitted on time.
Why Are Mortgage Companies Involved in Insurance Claims?
Mortgage companies play an important role in handling insurance claims, ensuring that repair funds are used appropriately. Their involvement protects their financial stake in the property while also safeguarding the homeowner’s investment.
Lender’s Financial Stake in Property
Mortgage companies hold a financial interest in the property because it serves as collateral for the loan. Lenders need to ensure that insurance payouts are used for necessary repairs rather than other expenses. In Canada, mortgage loans exceeding 80% of a home’s value require mortgage insurance, which protects lenders from default. The Canada Mortgage and Housing Corporation (CMHC) provides 100% government-backed coverage, ensuring financial institutions recover losses in case of non-payment. In the U.S., private mortgage insurance (PMI), FHA insurance, and VA insurance serve similar purposes.
PMI covers 42.2% of insured mortgages, while FHA and VA loans account for 28.2% and 29.7%, respectively. By controlling the disbursement of insurance funds, mortgage companies mitigate financial risk and protect their investment.
Contractual Obligations and Insurance Proceeds
Mortgage contracts include provisions that dictate how insurance claim funds are handled. Homeowners agree that any insurance payments for damages must be used to restore the property. Lenders often require that insurance checks be co-endorsed by both the homeowner and the mortgage company.
This process ensures that the lender oversees the use of funds, preventing misuse. In many cases, claim amounts exceeding a certain threshold are placed in escrow and released in stages after inspections confirm proper repairs. Federally regulated financial institutions in Canada must insure all mortgage loans with a loan-to-value (LTV) ratio above 80%, reinforcing the lender’s role in managing financial risks associated with home damage.
Homeowner Benefits from Lender Oversight
Homeowners benefit from lender involvement because it ensures repairs meet necessary standards, preserving property value. By enforcing structured disbursements, lenders help prevent fraud, incomplete work, or subpar repairs. In Canada, insured mortgage volumes reached $31.2 billion in early 2024, reflecting the importance of financial safeguards in maintaining home equity.
In the U.S., mortgage insurance allows homeownership with lower down payments while still providing lenders with financial protection. When lenders oversee claim funds, homeowners can be confident that contractors complete necessary repairs correctly, reducing future financial risks. Ensuring proper use of insurance payouts helps maintain home value, benefiting both lenders and homeowners in the long term.
Step-by-Step Process for Handling an Insurance Check with a Mortgage Company
When a homeowner receives an insurance check for property damage, the mortgage company is typically listed as a co-payee. This is because the lender has a financial interest in the property and wants to ensure the insurance payout is used for repairs. The process of handling the check involves multiple steps, from contacting the mortgage company to ensuring the proper release of funds. Here’s how to navigate it effectively.
1. Contact the Mortgage Company
The moment you receive an insurance check for property damage, your first move should be to contact your mortgage company. Specifically, reach out to their loss draft department and let them know about the check. Every lender has its own process, so ask them exactly what steps you need to follow. Request their specific requirements in writing if possible. This helps you stay organized and ensures there are no misunderstandings later.
Before you send anything, gather all the necessary documents. Your mortgage company will likely ask for multiple repair estimates, a copy of your insurance claim settlement, and details about your chosen contractor (including licenses and W-9 forms). Keeping detailed and accurate records at this stage is crucial. If there’s any confusion down the line, you’ll have everything documented.
The mortgage company will typically ask for the following:
- A copy of the insurance claim settlement
- A contractor’s estimate for repairs
- A completed claim package (forms vary by lender)
- The insurance check for endorsement
If the damage is extensive, the lender may require a home inspection before releasing the full amount. In some cases, if your claim is small and your loan is in good standing, your lender might endorse the check immediately and let you handle repairs independently.
2. Endorsing and Sending the Check
Since your mortgage company is listed as a co-payee on the check, their endorsement is required before you can access the funds. Some lenders allow you to get this done at a local branch, while others require you to mail the check to their processing center. Before sending anything, make copies of the check for your records, confirm the correct mailing address, and use a traceable shipping method. If you’re unsure about any step, call your lender for clarification before proceeding.
Once the mortgage company receives the check, they will determine how the funds are distributed. For larger insurance claims, your mortgage company might deposit the funds into an escrow account instead of handing over the entire amount upfront.
3. Releasing Funds and Repairing the Property
Once you have the funds, hire licensed and reputable contractors. Your mortgage company may have specific requirements about who you can hire, so double-check before signing any contracts. Throughout the repair process, keep track of every expense. Save all receipts and invoices—you’ll need them later. If your lender requires inspections, schedule them as needed to avoid delays in receiving your next disbursement.
For larger claims, mortgage lenders often release funds in three stages:
- Initial Disbursement: Provides enough money to begin repairs.
- Midway Disbursement: Released once work is halfway completed.
- Final Disbursement: Issued after an inspection confirms all work is complete.
- During this process, you must:
- Keep all receipts and invoices
- Ensure contractors meet the lender’s requirements
- Schedule inspections if required
4. Proof of Completion
After the repairs are finished, your mortgage company will need proof before releasing any remaining funds. This usually means submitting invoices, receipts, and possibly a final inspection report. Make sure all documentation clearly shows that repairs match what was covered in the insurance claim. If your lender requires an inspection, schedule it promptly to finalize the process.
Key Considerations
Certain factors impact how smoothly the mortgage company processes the insurance check and releases funds.
- Policy Review: Homeowners should review their mortgage agreement and insurance policy to understand requirements for handling insurance claims.
- Timelines: Mortgage companies follow specific procedures that take time. Setting realistic expectations helps avoid frustration.
- Legal Counsel (if needed): Disputes or complex claims may require legal advice. Consulting an attorney ensures homeowners understand their rights.
- Maintaining Records: Copies of all documents, including receipts, contractor agreements, and correspondence, help prevent disputes and delays.