High-Value Property Claims 101: Understanding and Navigating the Process

Ben Feick
Ben Feick
Dec 4, 2023

Navigating property insurance claims can sometimes feel like a maze, particularly when claims get extra attention from mortgage companies. This usually happens with certain kinds of claims that the industry calls monitored claims.

When a mortgage company decides to monitor a claim, it means they're going to look at everything more closely and follow a bunch of specific steps. Let’s take a look at why this happens, the steps you may go through as a property owner if and when it does happen, and how to get paid as fast as possible.

This article also includes insight on monitored claims that can better equip property restoration professionals with the information they need to help property owners navigate the process.

Why Do Mortgage Companies Hold Some Insurance Funds In Escrow?

About 60% of the time, mortgage companies endorse their part of an insurance claim check and send it right back to the homeowner, according to United Policyholders – a non-profit organization that helps consumers navigate insurance-related issues in all 50 states.

However, when a claim exceeds a certain threshold, typically around $40,000, or if the homeowner/property owner has a history of missed payments, mortgage companies pay closer attention to protect their asset – the house.

When a claim is labeled a monitored claim, it means that the mortgage company is taking extra precaution with the settlement money to make sure your house gets rebuilt or repaired. This helps protect you from untrustworthy contractors who may run off with your money. And it helps protect them by ensuring the repairs are made.

The process, which is a bit more rigorous than a standard claims process, involves inspections at various stages of work completion before more funds can be released. In addition to inspection documents, you might also be required to provide documents like estimates and receipts to the mortgage company.

For example, if you have an insurance settlement that’s $50,000 total, instead of endorsing the check and sending it right back to you, the mortgage company puts the funds in escrow. They send an initial amount and then release the rest of your funds in increments as the work on your house is completed and inspections are done to make sure the work is up to par.

What Happens if the Insurance Company Sends Multiple Payments? Does the Mortgage Company Hold All Your Money?

When you file a home insurance claim, your insurance company sends checks for each category of damage. For example, if you have a total loss, you would file a claim that includes dwelling coverage, personal property, and additional living expenses. And you’d get separate checks for each part of the claim.

However, your mortgage company only has a vested interest in your house. So your check for additional living expenses and your personal property will only be made out to you. The check for your dwelling coverage claim will be made out to you and your lender. This is the portion of your claim that could be put into escrow and monitored.

Why Mortgage Companies Only Hold Funds On Some Claims and Not Others

Mortgage companies monitor certain insurance claims, particularly larger ones, for several reasons:

  • Protecting Their Investment. The property serves as collateral for the mortgage loan, so mortgage companies have a vested interest in ensuring it is restored to its pre-loss condition to maintain its value.
  • Ensuring Proper Use of Funds. By monitoring claims and releasing funds in stages, mortgage companies can ensure that the insurance money is used specifically for repairs and restorations as intended.
  • Risk Management. For homeowners with a history of missed payments or financial instability, monitoring claims helps mitigate the risk of potential default or misuse of funds.

This oversight helps maintain the integrity of the property and the security of the mortgage company's investment.

The Difference Between a Standard Claim and One That’s Monitored

Understanding the difference between standard and monitored property insurance claims is important.

Standard claims usually have a simple process, requiring only basic documentation and a few inspections. However, closely watched claims are more complex and go through several inspections to check the progress before more money is given out.

Standard Claims

Compared to closely monitored claims, there’s even minimal paperwork involved.

The homeowner files a property insurance claim.

The insurance company completes the claims process and sends a check for payment.

The homeowner sends the check to the mortgage company for endorsement.

The mortgage company stamps their endorsement and mails it back to the property owner.

The homeowner deposits the check, which may be subject to a 7 to 10 business day hold from their bank to ensure the funds clear.

Once the funds clear, the homeowner disperse the funds as required.

Monitored Claims

Claims that your mortgage company chooses to monitor require additional documentation such as contractor agreements, insurance adjuster’s worksheets, and detailed repair estimates.

These more detailed claims typically also include:

  • Phased inspections to approve progressive disbursements.
  • An escrow account for disbursing payments.
  • The need for all payees to hand sign the back of the check before sending it to the mortgage company. This often includes trips to meet up with contractors, restoration professionals, law firms or public adjusters who were hired to represent the homeowner through the claims process.

How the Payout Process Works When Your Mortgage Company Holds Your Money

In more scrutinized claims, mortgage companies typically release payment in stages to ensure proper use of funds. The initial payment is a fraction of the total claim value, with subsequent payments made upon satisfactory completion of work stages.

Key points in the mortgage company payout process:

  • Initial Disbursement. Often only a percentage of the total claim value.
  • Progress Inspections. Required to release subsequent payments.
  • Final Payment. Made after final inspection and completion of work.

As an example, say you have a claim payout of $100,000, your mortgage company may release 25% of the total amount ($25,000) initially. This payment goes to the contractor to get the work on your home started.

Once the first round of work is completed, the home is inspected and the inspection paperwork is sent to the mortgage company. Once that’s verified, the mortgage company releases another 25% of the claim money from the escrow account. THis continues until the final payment is made and the work is completed.

Don’t want to deal with mortgage companies?
Let iink handle them for you.
Inquire About iink Pro

5 Reasons Property Owners/Homeowners & Contractors Worry About Having Settlement Money Escrowed

It’s common for homeowners and property restoration contractors to worry about having a claim that’s monitored by the mortgage company for several reasons, including:

  • Delayed Payments. The process involves more steps and inspections, which can lead to delays in receiving funds for repairs.
  • Increased Paperwork. Monitored claims require more documentation, adding to the complexity and potential for errors or omissions.
  • Inspections and Oversight. The need for multiple inspections can be seen as intrusive and may slow down the repair process.
  • Financial Strain. Contractors might not be paid promptly, potentially causing cash flow issues for homeowners if they need to cover upfront costs.
  • Perceived Complexity. The overall process can seem daunting, especially for those unfamiliar with insurance claims, leading to anxiety and concern.

However, it’s important to keep in mind, while these are valid concerns, the process isn’t overly complicated and goes smoothly in most cases. Help is available!

Financial Strain Ease
Learn about the solutions available to help with cash flow restraints.
Contact iink

Mortgage Company Holding Your Claim Money, Fear Not

Understanding the nuances of monitored claims can demystify the process.

The Role Each Party Plays in the Monitored Claims Process

Each party involved in these claims plays a critical role:

Property Owners. Must provide documentation and schedule inspections.

Contractors. Need to submit detailed work agreements and follow up on payments.

Mortgage Companies. Need to respond promptly to inspection documentation and payment requests.

Public Adjusters and Attorneys. Often navigate around being removed as payees and manage legalities.

5 Tips to Make Sure Your Money Is Released As Fast As Possible

1. Stay organized.

Keep all your documents, such as repair estimates and contractor agreements, in order. Staying organized will make it easier to provide necessary information quickly.

2. Communicate effectively.

Regular communication with your insurance company, mortgage company, and contractors is key. Promptly respond to requests for information and ask questions if you're unsure about any part of the process.

3. Schedule inspections early.

To avoid delays, schedule property inspections well in advance – seven to 10 days before each round of work is completed is ideal. This ensures that the mortgage company can get the documentation they need and release further payments without unnecessary holdups.

4. Understand the process.

Familiarize yourself with the claims process and what’s expected at each stage. Knowing what to expect can reduce stress and help you navigate the process more efficiently.

5. Seek professional assistance.

Don't hesitate to seek help from a public adjuster or legal professional if the process becomes overwhelming or complex. They can provide valuable guidance and support throughout your claim.

Ultimately, property owners and contractors don’t need to fear a mortgage company’s claims monitoring process. As long as everyone does their part in a timely manner, the process ensures the work on the home is completed and everyone’s happy with the outcome.

iink helps property restoration professionals and property owners save time and get paid on property insurance claims. Contact our sales team to see what your options are.