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Source: http://www.ag.state.la.us/Article/2336

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2336 2016-12-29 Attorney General Jeff Landry Offers Info to Understand How and When Mortgage Lenders Release Insurance Money

BATON ROUGE, LA – Many homeowners and businesses are struggling with the cost of rebuilding from the August floods as they wait for mortgage companies to release their insurance settlements more than three months after the natural disaster. Attorney General Jeff Landry is reminding consumers that mortgage servicers are bound by requirements set by mortgage companies Fannie Mae and Freddie Mac that require money to be held in escrow accounts and released in installments as work progresses. 

“Unfortunately, the Fannie Mae and Freddie Mac rules make getting insurance settlements a frustrating and slow process for our Louisiana consumers hardest hit by the floods,”  said General Landry. “Insurance companies routinely make settlement checks out to both homeowners and their mortgage lender or loan servicer, which collects payments for mortgage bond investors. Those damaged homes are collateral for loans.” 

General Landry said mortgage servicers can use some discretion in releasing settlement money.  He added that homeowners should contact his office if their mortgage servicers are moving too slowly, “we want repairs to get done and get families living in their homes again.”

General Landry offered the following breakdown of information on how and when mortgage lenders release insurance money based on the requirements set by Fannie Mae and Freddie Mac:

Requirements for Using a Contractor

For a mortgage loan that is current or less than 31 days delinquent at the time the mortgage servicer receives notification of damage to the property:
  • If the insurance loss proceeds are less than $40,000, the mortgage servicer is authorized to determine if a licensed contractor is required to restore or repair the property.
  • If the insurance loss proceeds are $40,000 or greater, the mortgage servicer must require that a licensed contractor is used to restore or repair the property.

Requirements for Releasing the Insurance Loss Proceeds
  • If the insurance loss proceeds are up to $20,000, the mortgage servicer must release the insurance loss proceeds payable to only the borrower.
  • If the insurance loss proceeds exceed $20,000, the mortgage servicer must release the insurance loss proceeds payable to both the borrower and contractor.

Requirements for Delinquent Loans

For a mortgage loan that is 31 days or more delinquent at the time the mortgage servicer receives notification of damage to the property:
  • The mortgage servicer must ensure a licensed contractor is used to restore or repair the property.
  • The mortgage servicer must release insurance loss proceeds payable to both the borrower and contactor.   If the borrower has made advance payments to the contractor, then the servicer may release the insurance loss proceeds payable to the borrower only if the borrower provides the servicer with invoices demonstrating the advance payments and that the work has been completed.

Borrowers should contact their mortgage servicers for specifics as details may vary from institution to institution. And for more consumer tips, call Attorney General Landry’s Consumer Protection Hotline at 800-351-4889.

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