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Educating Borrowers on the Loss Draft Process

This piece originally appeared in the May 2022 edition of DS News magazine, online now.

The stress of dealing with the after-effects of property damage is hard enough on your borrowers. The last thing they need is added frustration when it comes to navigating the loss draft process. In this article, we’ll provide helpful information you can share with your borrowers to help them understand the loss draft process and get their property repaired as quickly as possible.

Filing a Claim
An insurance loss draft check is a check issued to both the homeowner and their financial institution to cover the cost of repairing a property following damage resulting from fire, smoke, vandalism, or damage caused by a natural disaster such as a wildfire, flood, or hurricane.

If your borrowers have experienced damage to their property, they will first need to file a claim with their insurance company.

After the claim has been settled, your borrower will receive a check from the insurance company. Your borrower will see their mortgage company listed as an additional payee on the check.

Because the mortgage company has a financial interest in the property, they are listed as an additional payee on the check, which also protects their interest by ensuring the funds are used to restore the property back to its pre-damaged value.

The Loss Draft Process
The check will need to be mailed to your institution.

State insurance regulations and investor guidelines control the release of claim funds paid based on the extent of damages, the type of damages to the property, and details specific to the borrower’s loan.

Depending on these details, your organization may then have all the funds released back to the borrower to begin repairs or issued in partial releases as repairs are completed. Remind your borrowers to ensure all insurance funds are to be used to repair the property to its pre-damaged condition.

When partial releases of funds are required, many institutions require periodic inspections before releasing additional funds.

During a loss draft inspection, an inspector must examine repairs being done on the homeowner’s property. Financial institutions require these inspections to confirm that the damage reported in homeowners’ insurance claims is, in fact, being repaired. Your borrowers will need to allow their property to be inspected in order to receive additional release of funds.

Account Monitoring and Management
As part of the loss draft process, in addition to the claim check your borrower receives from their insurance, there may be further documentation required, as well as home inspections to check on progress of repairs before funds can be released.

The most common question from borrowers is how long this process will take. Because each financial institution’s requirements are unique, be sure to communicate with your borrower about timelines, required documentation, and any online account management tools offered by your institution.

You’ll also want to communicate instructions for:

  • The release of any insurance claims funds
  • Accessing account information and viewing specific claims
  • Accessing their claims packet and required forms
  • Submitting required documents
  • Viewing status of documents received
  • Viewing a list of pending documents
  • Requesting an inspection
  • Viewing status of funds received and disbursements issued

Helping your borrowers navigate the loss draft process will help your institution develop a deeper partnership with your borrowers and help them repair their property quickly following damage to the property.

SWBC has been providing lender-placed insurance services for more than 30 years and full outsourcing services for nearly two decades.

Our best-in-class risk management programs are backed by years of experience serving financial institutions and mortgage servicers. Our commitment to our clients includes significant recent investments in infrastructure and technology. Our self-serve channels were created to meet your borrowers’ expectations and provide efficiencies during the lender-placed insurance process. Borrowers can provide insurance information, monitor the entire claim(s) process, or make a payment with the convenience of any connected device.

Visit SWB.us/lender to learn more.

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About Author: Michelle Ceaser

As SVP Insurance Operations for SWBC’s Financial Institution Group, Michelle Ceaser is responsible for several lines of business including Loss Draft. Ceaser has spent 14 years leading Loss Draft operations, helping financial institutions design compliant loss draft processes, and developing technical solutions that provide a better loss draft borrower experience.
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