Why is My Mortgage Company On My Insurance Check?

If you make an insurance claim for damage to your property, you may be surprised to find both your name and your mortgage company on the insurance check.  This is common because the mortgage company has a financial interest in your property—just like you.  If you are wondering why your mortgage company is named on your insurance check, and what the mortgage company may do with the insurance proceeds, your mortgage agreement likely has the answers.

Does a Mortgage Company Have a Right to Your Insurance Proceeds?

If you have a mortgage on your property, your mortgage company has a right to your insurance proceeds.  This is because most, if not all, mortgage agreements require a borrower to maintain insurance coverage on the property.  

In this case, it is well-settled law in Florida that the mortgage company has a right to the insurance proceeds.  See Atwell v. W. Fire Ins. Co. of Fort Scott, Kan., 163 So. 27, 30 (Fla. 1935) (“It is settled by many decisions that where a mortgagor binds himself by a covenant in the mortgage, or otherwise, to insure the mortgaged premises for the better security of a mortgagee and his assigns, the latter will have a lien on any money that may become due on the policy taken out by the mortgagor, to the extent of the mortgagee’s (or his assignee’s) interest in the insured property destroyed.”); Sumlin v. Colonial Fire Underwriters Branch of Nat. Fire Ins. Co. of Hartford, Conn., 27 So. 2d 730, 731 (Fla. 1946) (“This court is committed to the doctrine that if a mortgagor covenants to protect his mortgagee the latter thereby is clothed with a lien on the policy to the extent of the mortgagee’s interest, whether the policy carried a loss payable clause or not.”); Nat’l Title Ins. Co. v. Lakeshore 1 Condo. Ass’n, Inc., 691 So. 2d 1104, 1107 (Fla. 3d DCA 1997) (“Florida has long recognized a mortgagee’s interest in any insurance proceeds derived from insurance which protects the mortgagee’s interest in the insured property.”).  The mortgage company’s right to receive insurance proceeds may also be reflected in the mortgage agreement.  

In the typical scenario, you will receive an insurance check made payable to both you and your mortgage company.  Your mortgage company will then ask you to endorse the insurance check and send it to the mortgage company.  However, in some cases, the insurance check will be sent directly to your mortgage company.

What Will the Mortgage Company Do With The Insurance Proceeds?

How the mortgage company will apply the insurance proceeds usually depends on the language in the mortgage agreement.  Usually, your mortgage company will deposit the insurance proceeds in an escrow account, and the mortgage company will then issue payments to fund the repair costs.  However, in some cases, the mortgage company will apply the insurance proceeds to the outstanding debt, instead of making payments to repair the property.   

For example, if the mortgage agreement provides that the mortgage company can apply the insurance proceeds to the outstanding debt, the mortgage company will likely prefer to apply the insurance proceeds to the outstanding debt if the loan is in default.  However, even if the loan is not in default, the mortgage company may choose to apply the insurance proceeds to the outstanding debt, instead of paying for the repair.  This is what happened in the case Bean v. Prevatt, 935 So. 2d 557 (Fla. 2d DCA 2006).  The mortgage agreement in Bean provided “that the proceeds of any such insurance policies shall be applied to the payment of the indebtedness herein, or at the option of the first party, to the repair or replacement of the improvements upon said property.”  In Bean, the court held that the mortgage agreement gave the mortgagee “the sole and unfettered right to decide whether the insurance payment is used to repair the [borrower’s] home,” and that the mortgagee was not required to use the insurance proceeds to repair the home.  Id. at 560-61.

Accordingly, the mortgage agreement language will likely control what the mortgage company will do with the insurance proceeds.  See id. at 560 (“Nevertheless, the plain language of the agreement for deed provides that [mortgagee] has the sole discretion to determine how the insurance proceeds are applied.”).

Does The Mortgage Company Have a Right to The Full Amount of The Insurance Proceeds?

Whether the mortgage company has a right to the full amount of the insurance proceeds depends on the amount outstanding on the loan and the amount of the insurance check.  Florida law is clear that the mortgage company only has a right to receive insurance proceeds up to its security interest in the property.  See Sumlin, 27 So. 2d at 731.  Accordingly, if the insurance check is for more money than the amount remaining on the underlying debt, the mortgage company cannot keep the excess amount.

Conclusion

If you receive an insurance check that names your mortgage company, it is important to cooperate with your mortgage company.  The first place you should check for clarification on why your mortgage company is named on your insurance check, and what the mortgage company may do with the insurance proceeds, is your mortgage agreement.  If you have any lingering questions or concerns, an attorney can assist you.