Cash for Ike Repairs Can Still Be In Limbo

Cash for Ike Repairs Can Still Be In Limbo

Insurance money held up until complete repairs are assured

By PURVA PATEL
Copyright 2010 Houston Chronicle

Johnny Hanson : Chronicle

This family, whose San Leon home was damaged by Hurricane Ike, are in bankruptcy as they wait for their mortgage company to release all of their insurance money.
Problems with delayed insurance claims have dominated mortgage-related complaints to state regulators since Hurricane Ike – though it’s not clear how many of them involved Ike-related claims:

Delays in claims handling: 80
Unsatisfactory claims settlement or offer: 9
Denial of claim: 8
Other: 47
Source: Texas Department of Insurance

The family is in bankruptcy, the house still isn’t fixed, and they fear they may lose it because of a situation as circular as the hurricane’s motion:
The mortgage company won’t release all of their insurance money until complete repairs are assured, and they can’t get to that point without the money.  What’s more, they can’t apply for federal grants that would help complete the reconstruction until insurance money is depleted — and they can’t deplete it if they can’t spend it.
No one keeps statistics on how many other Ike victims might be in this family’s situation, but the problem is widespread enough that it has drawn the attention of state lawmakers.  Sen. Mike Jackson, R-Pasadena, introduced a bill last year that would have tightened the rules for mortgage companies withholding insurance funds. It never got a hearing, but he hopes to introduce another in the 2011 legislative session to make sure homeowners have easier access to funds through the entire rebuilding process.
“The system is broken,” Jackson said. “There needs to be a better method to make it work and make the money flow.”
At the heart of the one family’s circumstance is a provision in most mortgage contracts that effectively gives lenders control of insurance proceeds for large home repairs.  From a mortgage company’s standpoint, the arrangement makes sense: The money it has lent is secured by the value of the house, and value of the house drops if it’s not properly repaired after storm damage.
Here’s how it looks from a homeowners standpoint: “It’s unfair. All of this could have been avoided if they just released the money in the first place.”  The lender says it withholds part of the insurance proceeds to make sure the work is done correctly. It says most contractors understand that and work accordingly.  But rent payments for each month they’ve spent outside their damaged home have already driven the to bankruptcy and, the family fears, could cost them the house they built in San Leon on the west side of Galveston Bay.

Offer to modify loan

After the Chronicle inquired, the this familys mortgage company, Chase subsidiary EMC Mortgage, offered to modify the loan so the couple could avoid foreclosure and agreed to free $26,000 in insurance proceeds.  But they don’t have the money yet.
Chase spokesman G. Gassoll said the lender will release the remaining funds after the bankruptcy court approves the mortgage modification and Chase gets written confirmation that federal grants will be available if necessary to repair the home fully.
The Galveston County Housing Authority, which is administering the federal grants, said it is working to move the process along.  A federal grant could cover any shortfall between the familys insurance and the final repair bill. To be habitable, the house still needs insulation, siding, heating and air conditioning, estimated at a minimum of $25,000.

Balloon payment

While the loan modification will reduce the monthly payments to $1,590 from $1,722, it will also cost $4,000 in attorney fees.
And they’ll face a $96,000 balloon payment at the end of the loan term in 2037.
Had the lender released the insurance funds earlier, they would have saved about $12,000 on rent, recovered another $11,000 in depreciation from their flood insurer and moved back into her home.
They have received some insurance money, but not enough to cover the cost of repairs.
The situation illustrates why even insured homeowners can suffer seemingly insurmountable difficulties after a disaster like Ike, even if they’re not physically injured.
“It’s a complete rock-and-hard-place scenario,” said D. Beck, head of the Texas Office of Public Insurance Counsel. “Now with some of these mortgage and finance companies having financial difficulties, they haven’t been in such a hurry to release some of these funds.”
Loan agreements usually stipulate that checks for insurance claims be made out payable to both the homeowner and mortgage company, said Everett Ives, a mortgage consultant and legislative coordinator for the Texas Association of Mortgage Professionals.

Lender’s signature

That means the homeowner can’t cash the check without the lender’s signature, and the lender often holds the money in escrow and releases it as repairs are made.  State law gives mortgage companies 10 days upon depositing insurance checks to tell homeowners what they must do to gain access to the money, such as provide a contractor bid.  Once the homeowner meets the requirements, the mortgage company has 10 days to release the money.
Many contend that EMC sent notice after receiving her flood insurance proceeds, but not her windstorm proceeds. Gassoll, the Chase spokesman, said the lender sent one letter to describe how the release of all insurance proceeds would be handled.
Ives, the mortgage consultant, said most lenders understand that unless they release at least some money, repairs could come to a halt and nobody wins.  “The homeowner loses interest in their house and in making payments, and the lender ends up with a house that’s partially damaged,” he said.
Families still hope it doesn’t come to that. They recently reached a confidential settlement with their windstorm insurer — less than they deserved, but another step toward getting through Hurricane Ike.
Comments:

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FloLake (3665)
FloLake wrote:

Oh bull. The insurance companies will ‘hang onto their money’ and use exery possible excuse they can muster. If the companies really stretch their delays long enough, it’ll be storm season again and more wiggle room for them to reduce or deny a valid claim all the way back to Ike.

Too sick. Shame on the insurance companies that are participating in these stall tactics.

3/7/2010 7:06:29 AM
jimmyev (0)
jimmyev wrote:
The whole thing with the insurance company releasing the money to your mortgage company is ridiculous. I don’t even have escrow, yet I still needed the mortgage company to sign the insurance check. Finding the mortgage company was a hassle all by itself. The fact that only 25% of the house is still owed made it even more ridiculous. When I plunked down cash for my new house, I wouldn’t insure it with State Farm because of this stupidity.

3/7/2010 7:02:18 AM
leansright (153)
leansright wrote:
If they are bankrupt now they should just walk away.Let the mortgage company have the house as is.Their credit is probably shot already and with the current situation nation wide that won’t matter much. It won’t be long and they will probably qualify for a new mortage.

3/7/2010 6:33:44 AM
Doug_SLeon (28)
Doug_SLeon wrote:
SImply pass a bill making the insurers and mortgage companies liable for the costs of these delays unless they can show just cause for them. Asking for ‘a letter from FEMA’ isn’t one IMO.

3/7/2010 7:56:42 AM
Roger-Poe (0)
Roger-Poe wrote:
7-7-2009
Pat Moden
Texas Department of Insurance

Pat,

I have a client that came to a (notorized) agreed to replacement cost loss claim for hail storm damage, with their insurer. Heldback (“depreciation”) replacement funds were promised more than once, in writing, by the insurer/adjuster per completion of the project. The ACV value was sent to the policyholder.

The project has been completed. Substantial and viable proof of the replacement scope by pictures, and agreed replacement costs, have been sent to the insurer.

The only replacement fund balance is the heldback “depreciation” sum. The insurer now claims (quote – “management would like”) a cancelled check from the policyholder to establish that the heldback funds have been “spent”. Like the ACV payment, the client needs the heldback replacement cost funds so as to pay us, so we can pay others, who pay others…

Common sense wise, it seems unfair and unreasonable for insurers to expect a client/consumer to be self-insured past their deductible. It seems to defeat the purpose of insurance.

What is the TDI position on this catch twenty-two indemnification scenario to policyholders, and/or insurers?
____________________
7-27-2009
Mr. Poe,

The provisions in a policy of insurance impose contractual obligations on both the insured and insurer. The Loss Settlement condition in most replacement cost policies specifies that the insurer will initially pay the actual cash value of the damaged covered property and requires the policyholder to complete repairs or replacement of damaged covered property prior to the insurer making further payment on a claim for replacement cost coverage. Most policies also have some limitation on how much time the insured has to complete the work and require the policyholder to provide verification of the repair or replacement. These policy contract provisions are common in policies that provide coverage for the replacement cost of the damaged covered property and have been included in Texas replacement cost policies for many years.

Since these policy provisions require policyholders to complete repairs or replacement of damaged covered property prior to the insurer making further payment on a claim for replacement cost coverage, policyholders may be in a position of paying for a portion of the repair or replacement of the damaged property until the insurer reimburses them for the amount of the difference between the actual cash value and replacement cost. In some instances, the policyholder may make other arrangements with the contractor, insurer and/or mortgage company.

While the insurer may request verification that the repairs have been completed before making any further payment, either through receipts, other documentation, or by inspection, proof of completion of repairs should be reasonable but sufficient to satisfy a reasonable person, under the circumstances, that the repairs have been successfully and properly completed.

If you, or one of your clients, believe an insurer is unnecessarily delaying a claim payment, including reimbursement for the depreciation hold back, I recommend filing a complaint with the Department’s Consumer Protection Division. A complaint can be filed on line at www.tdi.state.tx.us, or by calling 1-800-252-3439.

Pat Moden
Personal Lines Division
Texas Department Of Insurance
____________________
Note – The TDI does not seem to appreciate that homeowners should not have to have an insurance policy…for their insurance policy.
- Mortgage companies do not seem to appreciate the same…
CatContractor.org

4/6/2010 11:24:27 AM
kdp11 (0)
kdp11 wrote:
Stop doing business with them, make the comp. go out of business, they take our tax money and change names so they don’t have to pay all of the money back yet charge an arm rate no one could pay off. But if your going to be stupid u better be tough!!! Who Signed On The Dotted Line.

3/7/2010 11:47:51 PM
kdp11 (0)
kdp11 wrote:
Every one sees how the banks are making money hand over fist and still got o them, move to a different bank or even a credit union. When it comes to Ins. we are all scr__ed. To much going to the City, County, State and even the US Gov. in kick backs.

3/7/2010 11:36:30 PM
hyperbolix (51)
hyperbolix wrote:
Alert: Somewhat off topic:
.
Across the entire spectrum of political persuasion, in this story and so many others that folks comment on, you can see the real anger that Americans have with how things are being done in this country. This is not a left/right, Republican/Democrat split. Folks from far left to far right and everything in between can see the system IS NOT WORKING FOR THEM. Whether financial investments, medical care, job opportunities, government programs…each one is being run by and for the welfare of a relative handful of folks.
.
You probably couldn’t scrape up 20 Americans who think things are going about how they should be run. We’re not a complaining people, but the excesses of greed, power grabbing and to hell with the country has reached monumental proportions UNDER BOTH PARTIES and for those corporations that have so richly benefited from their political connections. Do those in power not realize they are playing with fire?
.
At some point, there will be an incident that galvanizes the American people. It will symbolize everything that has gone wrong with our country. At that point, we will either take it all back and get back on track to the real American Dream, or we will descend into a conflict that no one would willingly wish for. We are getting close to that tipping point, it seems to me.

3/7/2010 10:32:09 PM
my2centscounts
Insurance companies, be it home or health, will all they can to avoid payment. It is time to stop their monopoly and regulate them so customers will have a more FAIR opportunity to get what they paid for.

When I review such articles written about one of my clients or others…I always think there has to be a better way to deal with these difficult problems.  While we take great satisfaction in steering clients out of the clouds and working with the carrier, banker to successfully bring resolution ….it is still a tough deal for the homeowner.  Everyone has money but the homeowner.  No ones life is effected or changed but the homeowner.  The banker sleeps well every night.  The carrier sleeps well every night.  But I have clients who sleep in pop up tent campers because they have no money to sleep else where.  They have coverage.  They paid for the Additional Living Expense….ALE.  The carrier’s adjuster does not address this.  The client does not know they have choices.  That is why Public Adjusters are licensed, employed and empowered to resolve these problems under the oversite of each States Department of Insurance.j

John Wayne Campbell,Sr.
Executive Public Adjuster
Texas License No.1549815
Oklahoma License 40131821
www.johnwaynecampbell.com
www.PublicAdjusterAcademy.com

Texas Office:
1121 Doc Holliday Dr.
Anna, TX. 75409

214 257 7620
972 816 7813 Cell
480 772 4414 Fax

“Insurer breaches its Duty of Good Faith and Fair Dealing when the insurer fails to settle if insurer knew or should have known that it was Reasonably Clear that the claim was covered. Tex. App.-2008 State Farm Lloyd v Hamilton 365 S.W. 3d 725″