Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY

Lenders are entitled to insurance proceeds under as standard mortgage document clause that says essentially that, …. “Borrower hereby as assigns to Lender … Borrower’s rights to any insurance proceeds in an amount not to exceed the amounts unpaid under the Note… .   Lender may use the insurance proceeds either to repair or restore the property or to pay amounts unpaid under the Note, … whether or not then due.”  However - this is not always the case!


We have had recent experiences with clients being unable to use money from their insurance company because the lender had their name on the check.  This is a very common issue and lenders don’t always follow their loan documents as to who is entitled to the funds.

Example 1 – The Mortgage was satisfied (like from a short sale) but the Lender has kept the insurance proceeds.

The borrower had a water damage event that required the wood floors in part of the house to be replaced, along with bathroom vanities and cabinets.  The borrower had all the work done prior to doing a negotiated foreclosure where the lender waived the deficiency on the mortgage. When the insurance claim was paid, which occurred after the judgement of foreclosure that waived the deficiency, the check for $45,000 was made payable to the borrower and the lender.  The borrower endorsed the check and sent it to the lender with the specific condition that the check should be endorsed by the lender and returned to the borrower for reimbursement. 

The lender kept the check and claimed it was entitled to the monies to cover the unpaid portion of the promissory note.  The known value of the house was less than the judgment, so the lender knew that there would not be sufficient monies from the foreclosure sale to satisfy the mortgage obligation.

The borrower claimed the lender breached the stipulated judgment because it waived any deficiency from the sale of the property.

We were retained to pursue the funds and we sued.  The result was a negotiated settlement with the lender for 100% of the check amount.

Example 2 – The Loan Servicer endorsement of the insurance check.

A hurricane occurs in Florida and there is roof damage and associated interior water damage.  The homeowner does not have funds to fix and in fact the loan is delinquent.  The homeowner gets a public adjuster to assist with the claim and the insurance company agrees to a payment of $30,000.  The loan in the meantime has been taken over by a loan servicing company for the actual lender.  The recorded information in public records shows the actual lender.  The loan servicer agrees that the check can be negotiated by the borrower.

The insurance company issues the check and makes it out to the homeowner, the public adjuster, the loan servicer, and the lender.  The check is delivered to the loan servicer but they endorse it only with their endorsement stamp but not any endorsement for the name of the lender listed as a payee on the check.

After several borrower attempts to get the correct endorsements from the loan servicer, we had to intervene as attorneys to threaten the loan servicer because they had a special endorsement stamp (in which they guarantee the endorsement for the actual lender) but would not use it.  After 15 weeks the check was properly endorsed and was able to be cashed.

Interestingly the lender also granted a modification of the delinquent mortgage and allowed funds from  the insurance proceeds to start the modification trial period.

These are just two examples of how lenders can try to take advantage of borrower entitlement to insurance proceeds.  Anyone who is entitled to insurance proceeds should be well armed with knowledge of their rights under the mortgage or other loan related documents.


Copyright 2018 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.


Richard Zaretsky, Esq., ZARETSKY LAW GROUP, 1615 FORUM PLACE, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ@ZARETSKYLAW.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide

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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

This is something I did not know, absolutely not. The guys who you represent are lucky ones

Feb 04, 2018 03:53 PM #1
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