It may be difficult enough for policyholders to get paid by their property insurance companies, but what happens when the mortgage takes the money and keeps the float?
Probably nothing. According to a recent California Court of Appeals, Gray v. Quicken Loans 1 a borrower is not liable if they take the insurance money and deposit it in an escrow account that does not bear interest. Most mortgage contracts, also known as Deeds of Trust, require property owners to show proof of repairs after a loss in order for payments to be released from the escrow account. The most common management documents usually stipulate that the insurance income is placed in a blocked account and after certain milestones for repair have been reached, the mortgagor will release payments, or a series of payments, to the policyholder.
After William Gray completely lost his home to Thomas Fire in December 201
Although Mr Gray's claim was rejected, Quicken Loans should have recognized the possibility of collecting interest given the time that money could sit in deposit and should have shared that benefit with Mr. Gray. In California, Deeds of Trust are negotiable contracts, so if there is silence about the issuance of interest on insurance income, there is neither a statutory nor a contractual obligation for a creditor to share the interest if any exists.
If you are refinancing or buying a new home in an area that is the subject of catastrophic disasters, such as an area that is exposed to wildfire, it is worth asking your lender to change the trust document for the benefit of all parties in the event of an accident. situation. This is becoming a common occurrence in California, so much so that California lawmakers and the Department of Insurance have realized that due to shortages of supplies and qualified contractors common throughout California, insurers needed to extend the time they cover Additional Cost of Living (ALE) – no less than 24 months, but in some cases 36 months – if a policyholder acts in good faith and with reasonable diligence encounters delays in the reconstruction process in his home. When this money is kept in check for a long time due to delays in construction, the interest rate should benefit the policyholder.
1 Gray v. Quicken Loans, Inc. no. 2D CIV. B304532, 2021 S.O.S. 932, 2021 WL 790650 (Cal. Ct. App. March 2, 2021).