I have a resident who filed claim on their dwelling insurance from storm damage. We are listed as the lien holder on the insurance and thus have to give our signature to release the check. We do not want the resident to take the money and not repair the home. The claim check is around 13k and the repairs needed would not nearly add up to that if the homeowner completes it himself as he plans to. Resident still owes 8k on the home. Once endorsing the check how do you hold resident accountable? EX) from taking the money and running, not repairing the home or having a shiny new car on the front pad. I have no problem with resident coming out ahead, I just want to make sure certain responsibilities are taking care of.
I would guess you would need to speak with your lawyer and the insurance company. There must be some way as the lien holder to have control over insuring the work is completed and done correctly.
If you have any say at all never allow the home owner to do the work themselves. That would not guarantee the work is done correctly. As the lien holder you should be able to insist that licenced contractors be used. If it takes all 13K to do the work right so be it.
Is it possible to escrow the money and release portions of it as the work is completed?
I’m with Greg here…
Letting the buyer do their own fixes with money that has run through your hands is a bad idea.
I am not an attorney and what I am about to write should not be taken for a substitute for competent legal advice from a licensed attorney.
We have several attorneys speak at one of our workshops for community owners interested in starting their own captive finance company. During discussions of alternate forms of seller finance one of the attorneys, who is also a community owner, repeatedly to be very careful with using the buyer to fix problems and paying them to do it. He relates a story where the captive lender was sued by the borrower successfully, for allowing an incompetent workman to do work on the borrower’s home. (The borrower was the hired workman.) Apparently the work was shoddy which was the basis for the lawsuit.
He also relates an incident where the borrower sued the captive finance company because the captive finance company hired the borrower to perform electrical work the borrower was not competent to perform. Apparently the borrower, in his hired capacity as workman, was hurt while performing the work and ended up in the hospital. He sued and won.
I spoke with a local bank today close to the MHP. They said it is usually an agreement between the lender and Homeowner on what steps should be done and what criteria. They said since both names are on the check you can open a joint account, but you can’t control how much they would or could use.
I agree a licensed contractor should be mandatory, that way you know the repairs are done right, but how do you get the resident to agree to let you hold the money while it is being repaired by the contractor?
I know I lose most of the negotiating power once the check is endorsed.
The leverage you have may be to call in the loan on the home. If you can not do as Bruce suggests with a escrow account then maybe you can force them to pay off the $8000 owing and the home owner does as he pleases with the repairs.
Regardless I would not release the check from the insurance company until you have a very clear understanding with the home owner as to what you expect in the way of repairs.