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HMI Education Series
Collecting Payment From Banks When Your Client's Home is in Foreclosure |
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The Problem
The recent economic downturn has left millions of homes, and homeowners, in foreclosure. These foreclosures, in turn, may require insurance payments to be sent to the mortgage holder (Bank), not the homeowner. Getting payments released from a Bank on a foreclosed property can be difficult.
This unfortunate chain of events is often unknown by tree care companies prior to performing storm-related removal or cleanup. In addition, these companies are unaware if a property is in foreclosure or will be foreclosed soon after the work is completed. This education guide provides the necessary steps to get insurance payments from Banks for tree work that is performed on a foreclosed property. | |
The Cause of the Problem
As mentioned above, almost every insurance policy names the Bank, which holds the loan on the property, as a beneficiary of the policy. Mortgage contracts require that insurance proceeds be paid to the Bank if the damage to the home will cost over a certain amount to repair. Banks will only release the money when the property owner has provided them with evidence that the repair has indeed been completed. The rationale: The home is collateral for the mortgage loan, and if the home is damaged, then the insurance money becomes the Bank's collateral until the home is repaired.
Ultimately, it is the property owner's responsibility to release the insurance money from the Bank and pay for the tree work. But, if the home is in foreclosure, the home owner is likely bankrupt and no longer has any rights to the insurance money or the home. Therefore, action must be taken against the Bank if it refuses to release the insurance proceeds. Most Banks take the position that (1) the insurance money is part of the collateral that secures the loan, (2) that they are entitled to the insurance money because they are secured creditors, and (3) they are invoking their rights under the loan. | |
The Solution
In most instances the Banks DO NOT legally have the right to insurance money for work that has been performed, even if the home is in foreclosure. Click the link below to see an example of a standard deed of trust (also known as a mortgage agreement). It states that a Bank does not have a right to insurance money paid under an insurance claim. These monies are excluded from the Banks collateral [see the deed text highlighted in yellow]. The following is a process that a tree care company can follow in order to force the Bank to release insurance monies for tree work: - Confirm that the insurance company made payment to the Bank. Get the name of the insurance company and contact them and ask for contact information at the Bank.
- Contact the Bank and demand payment. Make sure that your demand is made in writing and send the demand by certified mail.
- If the Bank refuses to release the insurance proceeds, a complaint can be filed with the Office of the Comptroller of Currency (OCC), which is a government body that regulates the banking industry. Please click the link below to download a complaint form. The OCC in most instances will instruct the Bank to release the insurance proceeds as payment for the work performed.
Example of a Deed of Trust
OCC Customer Complaint Form | |
Case Study and Procedure
Please click on the link below to read a case study by a vendor that repaired a home and successfully went through the process described above. We hope that this information is helpful.
Vendor Case Study and Procedure | |
Please note that this is not legal advice and is for informational purposes only. Please consult the appropriate advisors before going through this process on your own. |
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Horticultural Asset Management, Inc. � 2012 |
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