I am helping a wildfire victim on Maui who has a high interest (9% going to 11% next month) short term loan on their dwelling. They had recently completed a beautiful renovation on their house that doubled its value. Then the fire happened, and they suffered a total loss. The insurer paid out the full coverage on the dwelling, but the lender doesn’t want to cash the check. Apparently the lender prefers to foreclose. If they could pay off the bulk of the mortgage, they could probably find a way to refinance. Any ideas on what they can do?
There is no exact rule on how long a lender can hold the insurance funds but Fannie Mae will flag anything held over one year by their lenders. If the check has been endorsed, then the lender should deposit it as well. The check from the insurer will go “stale” after so many days and might need to be re-issued if not deposited. Not depositing it to force them into foreclosure doesn’t seem to be an appropriate business practice.
The client might be entitled to disaster forbearance, even for this type of loan. We recommend contacting either of the two agencies below for more concrete mortgage help.
There are HUD mortgage counselors available through Fannie Mae’s Here2Help program that offers housing counselors , 1-855-437-3243 or https://yourhome.fanniemae.com/talk-to-a-housing-counselor, and Disaster Recovery Counselors with complex disaster issues through Porchlight/Money Management International, https://www.moneymanagement.org/contact-us/disaster-recovery.
On the rebuilding side, assuming the lender deposits the insurance proceeds, as long as they continue paying their loan payments, they cannot force them to pay off the loan (if a mortgage; if a construction loan, those having varying terms). Please encourage them to apply for FEMA and SBA; with SBA offering the terms for rebuilding of $500,000 and rolling your mortgage in, that might be something that would benefit them as well.