How to Navigate the Mortgage Company Maze
Contractors must understand how to effectively navigate the mortgage company maze in order to grow restoration company
The bane of every grow restoration company is working with mortgage companies to process customer payments. If the insurance check shows up with the mortgage company as an additional payee you are in trouble. This blog gives you tips on how to more successfully navigate this maze.
So how does this work? Most insurance carriers have a policy that if the total repair bill including both mitigation and rebuild services exceeds $7500 the mortgage company, who they claim has a vested interest in the outcome of the claim, is added as an additional payee. The check could include the policyholder, the contractor and the mortgage company as endorsees. The process is made more difficult if the contractor’s name is not included. Contractors should Present their signed customer contract and plead with the carrier to include the contractor’s name on the check. In the end the contractor is the party who will do the majority of the work to get the payment processed and released on behalf of all parties.
How many damage repairs exceed $7500? Nearly all! This means that more times than not you will have to navigate the mortgage company maze. There are some steps you can take to speed the process and get your money more quickly.
1. Streamlining the payment process begins with the contractor’s contract with the homeowner.
Contractors should include a clause that states that any and all proceeds received from the insurance carrier for repairs will be immediately made available to the contractor. If a mortgage company is named you want to begin processing the payment with them as early on as possible. Many carriers send a check to the policyholder as soon as they approve the contractors estimate. More often than not this check represents the ACV payment (or about two-thirds of the total repair bill), and some carriers actually send the entire amount of the approved repair estimate.
2. Contractors must have Mortgage Communication Agreement.
The Mortgage Communication Agreement is the homeowner’s authorization for the contractor to speak to the mortgage company about the claim and the processing of payments held by the mortgage company. Without this authorization you won’t get to first base. It can be a simple form but it must be signed by all parties listed on the mortgage and insurance documents.
Every mortgage company has their own unique set of required documents though the batch is similar to one another. Keep an active file describing each lenders process and containing their blank forms. There are documents for the homeowner to complete, others for the contractor to fill out, and even documents for the carrier to provide. There is a lot of work that goes in to getting all parties to complete their part in a timely manner so you really need to have this duty assigned to someone on your staff to track it all or you will get lost in the maze.
3. Contractors must drive this payment process.
I learned early on that if you don’t drive the process it will sit on some mortgage company representative’s desk until it begins to mold. I once called one of the larger mortgage companies when I realized we had not heard from them for two months about a pending payment. I was told by their representative that they were waiting to hear from my company before taking the next step. When we failed to call they were happy to do nothing. That is how they play the game. They are in no hurry to release money to you. You must drive the process forward.
A word of advice – if you send documents that should arrive in two days and they state they need 3 days to process the information I would call them on day 3 to insure they received the documents and again on day 6 to insure they have completed their processing. If you fax documents I would identify a person to fax the documents to and then call once faxed to insure they have your documents in hand. You will likely find that there has been a hiccup somewhere along the way and they will require additional time to complete processing on their end. That is just how it is. Your accountability calls will cause the process to move forward as rapidly as it can.
4. The first payment is ready to be released.
Once ALL documents have been received from all parties and processed by the mortgage company one-third of the payment submitted will be released. This is not one third of the entire claim it is one-third of the two-thirds ACV payment you forwarded to the mortgage company. At 50% job completion a second one-third payment will be released and when the work is 100% completed the mortgage company will schedule an inspector to insure all work is done. Once passed for completion the final one-third payment will be released.
If you do the math you will see that the entire job will be completed with 50% of the total claim amount paid to you as construction draws. Still, getting 50% of the entire claim charges is better than floating all the repair costs as is common in our industry.
5. When the work is completed.
Once the work is done the insurance carrier will release the final one-third RCV payment and that too will have to go to the mortgage company for processing. This payment is processed quickly since from the standpoint of the mortgage lender the claim is complete and the 100% inspection is a matter of record.
6. Even the slightest error can lead to a payment rejection.
If estimates and payments, or documents and payment amounts are off by so much as a penny the documents will be rejected. Contractors really need to assign someone who is detail oriented, who maintains a clear follow up and tickler file to alert them for the next scheduled follow up action. This person should be persistent and tenacious in working with the mortgage company as your payments are processed and released. If you don’t do this you will likely wait and wait and wait for your payments to arrive.
The involvement of mortgage companies in the payment process is a terrible hindrance to cash flow management. If the mortgagee has any derogatory history with their mortgagor the process can be held up even longer. The most contractors can do to influence the process and speed the release of payments is to dedicate a single person to follow the process from start to finish.
As with many restoration companies my company employed a full-time collections person whose sole task was the speed to release of payments. This is one of the best cash flow and cash management commitments you can make!
There is no reason to fight this process. You can’t beat it! Just get on board and follow the process every step of the way to insure you get paid as quickly as possible.
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