Hello Matt Locke ,

With regards to the recent California Wildfires.

Can a homeowner walk away with insurance money and THEN foreclose on the property? Leaving the lender holding the bag.

How would a lender protect their interest in a home that's been burn? Homeowner pays for the insurance and would they receive the claim funds.

How does the insurance company pay to satisfy a claim? Lump sum/increments/escrow account?

Thank you for taking the time to answer my question.

Terri

Terri,

Good questions.   Two quick answers-

1.   The mortgage company is traditionally added as a Mortgagee of the property.  When the Insurance company makes a major payout, the mortgage company often requests to be made a party of the transaction.

Example: My tenant burned my rental home.  The check was written to me personally due to the low value of the loss (50k or so).  The Insurance company also provided me additional funds for: debris removal, loss of rent (which I used to pay the mortgage), and other fees that I incurred due to the loss.

Example 2: A customer of mine purchased a home and less than 12 months later the home burned.   The mortgage company was notified that the home burned to the ground and required that they be added to the disbursement check.  The Mortgage company set up a Escrow account for the rebuilding effort.  The insured agreed and that is how the check was disbursed.  NOTE: The insured contacted a builder and the builder is rebuilding the home and the checks to the builder have been dispersed from the "escrow" account.

Example 3: Another customer of mine lost his home in a fire.  It too burned to the ground.  The insurance company cut him a check and he did pay the mortgage off.  The mortgage company never knew that the home burned.

The answer to this question is not as cut and dry as one would expect.  The fact that each of the above examples were individual incidents and not a catastrophic event like that in California puts the mortgage company at a disadvantage for information.  The California event puts the mortgage company on notice and their knowledge of the loss could pose special handling of the funds... The mortgage company's requests would only be heard if they were properly listed on the policy as a "Loss Payee".

2. How does the insurance company pay the claim?  There are many facets of the insurance policy and each part of the coverage can be dispersed differently. 

Example: Debris removal fees, Loss of Use, and Loss of Rents are types of coverage that are not "Dwelling coverages".  These type of expenses are often dispersed individually for the specific needs.  Dwelling coverage is another type of coverage that would be more often subject to the "loss payee" definitions of the policy.

 The fires in California have been a terrible event and emotionally painful for not only those that have lost their homes and family members but to the entire nation.  Our prayers are with these families and trust that the communities, insurance companies, and the government will do all possible to aide in their efforts to restore a semblance of normalcy.

Respectfully,

Paul "Matt Locke"