Insurance question- fire damage on rental

9 Replies

Hi, one of my rentals had fire damage and is insured through Allstate. They were great with the process so far and have a check ready for me, but they said since I have a mortgage on the property they send a check with my name and the mortgage companies name too. They said the mortgage may hold some the money? Has anyone been in this scenario and know how it works?

I’m actually going through this right now. I had a fire on my 3-flat in Berwyn, and Berkshire Hathaway did something similar to your situation. They sent me multiple checks addressed to me and my mortgage company. I had to mail each check to my mortgage company to sign off each time. I then received the signed checks from the mortgage company and deposited them into my bank.

My mortgage company was withholding some funds until they had their inspector come out and check the progress of repairs. Depending on how far along the repairs are, the mortgage company will release the rest of the funds or send a partial payment (you may need to have another inspection after repairs are complete to release the rest.)

Hope this helps!

@Isaac S. I have gone through insurance claims twice for my rental property out here in the Chicago suburbs (Brookfield). First time was for hail damage. Second time a huge tree branch landed on the roof. Both times through the claims process went very similar for me. I got two checks each time from the insurance company. The first one was for about 75% of the repair cost. That first check needed to be endorsed/signed by all the people in title and the Mortgage company. So I would get the check. My wife and I sign the check. Then we sent it to the mortgage company. They would endorse it and send it back within a week. Then we can hand that check over directly to my contractor.

The second check from the insurance company always came without the mortgage company on the line. So only my wife and I had to sign before handing it over to the contractor when he was done with the job.

But I was never told that my mortgage company can hold any of the money while the repairs were being done.

Correct, this is common where the carrier will need to sign the check as well, but also might withhold some funds until the project is complete to everyone's satisfaction.  It's for your protection and most contractors with experience will be privy to this process.

@Isaac S. You do have to mail the check to the mortgage company and they will hold funds until the property has been repaired and inspected.  Nothing out of the ordinary with your claim. That is standard practice when settling a claim.  Thanks, Alan Sussman

Weird question, but what do you do if the insurance company gives you x amount of money but the repair only costs y, do I just give the difference back?

@Isaac S. (For background--I'm both an investor and own a restoration company) The short answer is no--you don't return the difference back, but it's a bit more complicated than that. My first question is "why did it cost less?" The RCV (Replacement Cost Value) is designed to be the retail price for the repairs to be done to professional standards. Can you save some money from that amount? Perhaps, yes. Should you? Perhaps not. 

Part of the service of a professional restoration company is to be sure that the scope of work aligns with the insurance company and to negotiate on behalf of the property owner to be sure that the repairs are being done properly and fully paid for (less your deductible). If a company does that, then their bill should align exactly with their insurance settlement. Why would they accept less? or "What did they leave out?"

On the other hand if you are not using a restoration company, you are performing that role that yourself. Good luck--you might get a fair treatment from your insurance carrier--some adjusters are honest and knowledgable; some not so much. If you get a good settlement and GC the project yourself, you may be able to save a little bit--but it will cost you in time and effort. 

One other consideration: Your initial payment from the insurance carrier is called the ACV (Actual Cash Value) and is a portion (usually 2/3 or more) of the total settlement. You will not receive the full amount (called the RCV--Replacement Cost Value) until the replacement is completed. If you choose to keep the ACV and never do the repairs, that is your right as the homeowner--they will only pay RCV once replacement is complete. 

So the answer isn't a simple yes or no--Hopefully that helps give some contexts.Please let me know if there are any other questions I can help with.