Why the lender is involved

If you have a mortgage, the lender has a financial interest in the house being repaired. Most mortgages require the lender to be named on the property policy, and insurers commonly include the lender as a payee on dwelling checks. Contents and living expense payments usually come to the owner alone, but checks for rebuilding walls, roofs and floors frequently need the lender's endorsement.

Lenders and loan servicers often have a separate department that handles these funds, sometimes called loss draft or property claims. Depending on the size of the claim and the status of the loan, they may endorse the check back to you, or deposit it and release it in stages after inspections. Each servicer has its own forms and thresholds, so the process for a neighbor's claim may look different from yours.

None of this is unusual, but it adds time. A rebuild contractor waiting on a draw that is sitting in a loan servicer's queue may slow down or stop. Starting the paperwork early prevents most of that.

Getting funds released without long stalls

  1. Call the servicer first

    Ask for the claims or loss draft department and request their packet and instructions before the first check arrives.

  2. Gather what they ask for

    Commonly a copy of the adjuster's estimate, a signed contractor agreement, the contractor's tax form and a lien waiver form.

  3. Send the endorsed check as directed

    Use a trackable method and keep copies of the front and back of every check.

  4. Request inspections promptly

    If the servicer releases money in stages, ask how to schedule the progress inspection as soon as each stage is reached.

  5. Collect lien waivers with each payment

    A waiver for each draw shows the contractor, and often major suppliers, were paid for that portion.

Questions for the loan servicer

  1. Will you endorse this check back to me, or hold the funds?
  2. If you hold funds, how many draws are there and what triggers each one?
  3. Do you inspect the work, and how far in advance must it be scheduled?
  4. Can payments go directly to the contractor?
  5. Do supplement and depreciation checks follow the same process?
  6. Is any of this different if the loan is past due?

General information for Littleton, not a quote or professional advice. In an emergency, call 911.