Mortgage question Kevin Wack asked 4 weeks ago
Mortgage question

My spouse and I lost our house in the Southern California wildfires of January 2025. We expect to receive a check from our insurance company for Coverage A – Dwelling and Coverage B – Separate Structures shortly. The amount of the check will be about 20% more than the unpaid principal balance of our mortgage. We expect the check to be made out to the two of us as well as the mortgage company.

What will happen when we mail the check to the mortgage company? Will the entire amount be held in an escrow account, while we’re also expected to continue making our monthly payments? If the money is held in escrow, can we expect to earn any interest on it?

And do we have any other options here? We’ve read that it’s not advisable to pay off our entire mortgage upfront. But it seems like that might be a better option than parking the money in an escrow account that earns little or no interest.

We realize that forbearance is an option, but how does that benefit us, since we’ll eventually have to make up for the missed payments?

1 Answers
Answer for Mortgage question United Policyholders Staff answered 4 weeks ago
1 Vote Up Vote Down

Hi Kevin, we are sorry to hear of your loss. You are asking very good questions and we suggest that you contact your accountant and lender directly to discuss potential scenarios regarding your insurance settlement. This is a tricky area. UP has information about mortgage companies and tax strategies, which you can read about here:

https://uphelp.org/claim-guidance-publications/getting-your-mortgage-company-to-release-insurance-proceeds/

https://uphelp.org/claim-guidance-publications/tax-information-for-disaster-survivors/

Each lender has different options, but you certainly want to consider the following:

-Whether you are planning to rebuild or replace your home

-Your current loan interest rate

-Taking another loan out to rebuild or replace, should you pay off your current loan

Questions for your lender include:

-What is your process for handling and endorsing insurance claim checks?

-Will you release the full amount at once or in installments?

-What documents do you need to start processing the check and issuing a refund on the overage?

-What are your timeframes for check endorsements, inspections (if I rebuild), releasing funds?

-Who is my point of contact for questions about the process?

-Do you have additional or special financing rates for disaster related expenses or repairs?

-What are the pros/cons of a forbearance for us (not the lender)?