Under the mortgagee clause, victims of natural disasters could find their home insurance checks delayed for long periods of time by their mortgage lender.

Home owners hit with sudden high repair costs, such as those affected by the flooding in Louisiana and by Hurricane Hermine, can end up having trouble cashing their insurance checks if their mortgage lenders withhold funds until certain conditions are met, according to Daniel Goldstein at MarketWatch.

The “mortgagee clause” requires some insurance checks to be signed not only by the home owner but by the mortgage lender in order to be cashed. Once the lender receives the check, the lender can hold the check in escrow until repair estimates are made, or until an inspection is carried out – a process which could take months depending on the size of the lender. It can even choose to hold the cash until repairs are finished, according to Goldstein.

Fannie Mae recently released guidelines stating that loans that are current or less than 31 days delinquent can receive an initial disbursement up to $40,000 or 10% of the unpaid principal balance (UBP) in insurance claim losses, whichever is more.

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