Unnatural Disaster: How mortgage servicers are strong-arming the victims of the Moore, Oklahoma tornado (among others)

On May 20, a massive EF5 tornado whipped through heavily populated Moore, Oklahoma, killing 24 and injuring nearly 400. That tragedy has now shifted into the drudgery of recovery. According to the state’s Insurance Department, claims from the tornado in Moore and a subsequent twister in the city of El Reno have topped 60,000. The damage is expected to reach $2 billion.

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.

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