We lost our home in the 2021 California Caldor Fire and have decided to pursue a replacement home in another location. Our insurance company will release funds to replace, but our mortgage company is telling us that they won’t release the funds they are holding to replace, which represents half of the replacement total. The mortgage company is claiming that in order to release their funds, we can only rebuild on the original property or pay off the original mortgage with insurance money. However, in order to pay off the original mortgage, that would require the insurance company to pay out considerably less because it would not include ordinance and law coverages and replacement value coverage. Therefore, the insurance and mortgage paths forward are at cross purposes with each other if we are trying to replace the property rather than rebuild.
Our question is this: Are we correct that we are entitled by California state law (California Insurance Code 2051.5C) to use all the insurance proceeds available to us to replace with another property, or can the mortgage company prevent us from accessing the half of the proceeds they are holding, limiting us to only rebuild on the affected site or pay off the original mortgage? What guidelines are mortgage companies required to follow concerning the release of insurance funds to replace rather than rebuild – and what resources might we use in dealing with a recalcitrant mortgage company?