Mortgage servicers stealing tornado recovery funds
by David Atkins
Hullabaloo veteran Dave Dayen writes in The New Republic of the theft of disaster recovery funds by mortgage services. Focusing specifically on the victims of the Moore tornado, he points out an appalling reality:
But residents of Moore may be shocked when they receive their insurance checks in the coming weeks. Like survivors of previous natural disasters, they will encounter a major obstacle to rebuilding their homes and putting the catastrophe behind them: their mortgage servicer. Turns out the same companies that ripped off homeowners during the foreclosure crisis are, after disasters like the Moore tornado, withholding repair money, often to force homeowners to use the proceeds to pay their mortgage.
The key issue concerns the standard practice for large homeowner’s insurance claims. As laid out in the fine print of mortgage and insurance contracts, the insurance company will make out the check jointly to the homeowner and the homeowner’s mortgage servicer. If the homeowner has a second mortgage on the home with a different servicer, the insurer writes a three-party check. This is intended to protect the lender if the house simply cannot be rebuilt, at which point the proceeds from the insurance claim can get used to pay off the loan. But in all other cases, it means that the homeowner must secure the endorsement of the check from the servicer(s) before they can get the money to pay for repairs.
Only the most fastidious of homeowners know this. The rest learn the hard way—like the residents of Bastrop, Texas. The most destructive wildfires in Texas history tore through the town in September 2011 and destroyed 1,691 homes. Most of these were total losses, and the insurance claims should have gone toward rebuilding. But a survey by the nonprofit consumer advocacy group United Policyholders found that over one-third of respondents were told by mortgage servicers that they would only release funds if the homeowner used them to pay off or pay down their mortgage, rather than make repairs. Though United Policyholders executive director Amy Bach hadn’t seen such a scenario in her 21 years of advocacy, “It made me think that the problem is more common than I realized,” she said. “It’s not like Bastrop is the only time lenders ever overreached.”
This is America, a land where doing anything but offering anodyne “thoughts and prayers” in the immediate aftermath of a tragedy is considered gauche, but where demanding that the victims of horrible tragedies not be ripped off by unscrupulous financial services leeches is socialist.
If ever I’m homeless as a result of a natural disaster, please feel free to skip the thoughts and prayers on my behalf. They’re not helpful. Instead, please do call your Congressmember to make sure disaster aid is provided quickly without stupid cuts to other parts of the budget, and that the aid is allowed to go where it’s supposed to rather than getting stolen by the worst sorts of humanity hiding under the mask of capitalism.
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