Mortgage Company Replacement Property Kent Fortin asked 2 years ago
Mortgage Company Replacement Property


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?

1 Answers
Amy Bach Amy Bach Staff answered 2 years ago

It may be the case that the person you’re speaking with at the mortgage company is unaware that CA law changed to give you the express right to use your insurance funds to purchase a replacement home instead of rebuilding. They don’t have the right to hold up your project and as long as you’re current on your mortgage payments and have provided them with documentation related to the home you want to purchase, they can’t pressure you to prematurely pay down or off the loan. If the CA Dept. of Insurance Consumers Services division can’t help you, a letter from an attorney to the lender should do the trick. But you can start first by requesting assistance from CDI and they may intervene with the mortgage rep at no charge to you.