Hi Alexandra, We are sorry that you are going through this issue with your lender after your devestating loss.
Under a standard California mortgage agreement, your lender generally cannot require you to use your insurance proceeds to pay off your mortgage simply because your home was destroyed, particularly if your loan is current and you intend to rebuild. However, your specific mortgage terms and payment status are important.
Your credit union may hold dwelling insurance proceeds and release them as rebuilding progresses, but that is different from requiring you to pay off your loan.
We recommend requesting written confirmation of your loan status and the specific contractual basis for the credit union’s demands. Do not sign an agreement acknowledging a default you dispute without first consulting a qualified California attorney.
If the credit union continues to withhold your rebuilding funds, consider filing a complaint with the California Department of Financial Protection and Innovation (DFPI).
The following UP resources may be helpful:
UP: Getting Your Mortgage Company to Release Insurance Proceeds (CA)
UP: Sample Letter Requesting Release of Insurance Proceeds
We would also recommend filing a complaint with the Department of Financial Protection & Innovation, if you do not make any progress with your lender.
California DFPI: Submit a Complaint
Warmly, Lexi
