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Rebuilding after a Disaster

I've settled with the insurance company, now what?
Once the dust settles and everyone is safe, homeowners affected by a disaster should immediately call their insurance company and their mortgage servicer; they will be your partners in rebuilding your home.

As soon as the insurance process is underway, you should immediately contact the customer service center or claims center for your mortgage servicer. Most mortgage service companies have a packet of information ready with instructions on what to do with your insurance settlement check and how to manage the repair and reconstruction of your home.

Why is my insurance settlement check written out to my mortgage servicer?
Assuming you have a mortgage on your home, the insurance settlement check will likely be written to both you and the holder of your mortgage (a bank or mortgage service company). This is because the lien holder has a right under the Uniform Commercial Code to protect its collateral and to make sure the insurance money is used to actually repair the property (remember, the house is the collateral for the loan).

If your damage was relatively minor and your insurance settlement is less than $10,000, the mortgage servicer will usually endorse the check and return it to you immediately.

If you sustained major damage or a total loss, the mortgage servicer will normally release one third of your settlement check immediately so you can make a down payment with your contractor. As the construction process continues, the mortgage servicer will typically release another third of the money when the construction is 50% completed and the final third upon completion of the entire project. Because the servicer is responsible to the holder of the mortgage to return your property to its original value, they may require an inspection of the construction work (which they will pay for) before releasing all of the funds.

My contractor says I should have the insurance settlement check written only to me to speed up the rebuilding process?

This is unnecessary and impractical because your mortgage servicer has the right, under the Uniform Commercial Code, to protect its collateral and to make sure the insurance money is used to to restore the property to its original value.

Most mortgage service companies have a very fast turn around time and will work with your contractor to begin construction as soon as possible.

Most licensed contractors understand that the mortgage servicer will be included as a payee and most will work with their customers. To check if a contractor is licensed, call the Department of Labor and Industry at 800-342-5354.

Do I have to use the insurance settlement to pay off my current mortgage?
No. Your mortgage service company will keep your insurance settlement money in escrow and release it to you in installments so you can repair or rebuild your home. You are not required to pay off your current mortgage and should continue making your normal monthly payments.

If my house is destroyed, am I still required to make mortgage payments?

Even if your house is completely destroyed, the mortgage still exists. Most mortgage service companies will work with you to set up a payment plan, provide a grace period for late charges, and help in any way possible.

Contact your mortgage servicer, inform them of your situation, and ask them to explain what assistance they offer. You may be eligible for a grace period if:

• You have evidence that your ability to make payments has been affected because your place of employment or ability to work was affected by a disaster.
• You're the spouse of someone who died, is missing, or was injured in the disaster.
• Your property has been damaged or destroyed and is within a federally declared disaster area.

During this grace period most mortgage servicers will waive late fees and stop any late payment collection activities. It's important you contact them to understand what assistance you are eligible for and the requirements for repaying any payments missed during the grace period.

Call the Minnesota Department of Commerce with Questions
For questions regarding insurance call the Minnesota Department of Commerce Consumer Response Team at 651-539-1600 or 800-657-3602 (outside Twin Cities Metro area). You can also visit our website

Working With Contractors--Tips from the Minnesota Department of Labor and Industry
Do your homework before work begins on your home
The Minnesota Department of Labor and Industry (DLI) reminds homeowners to do some homework before hiring a building contractor after a storm ... or anytime.

Before hiring a contractor, visit or call the DLI to verify the contractor is licensed and to learn if there is a history of disciplinary action. And do not to sign anything presented by a contractor unless you read the document very carefully and have made a firm decision to hire that contractor. Generally speaking, if you sign a piece of paper, it is a contract, regardless of what the salesperson tells you, and you are then obligated to its terms.

In some cases, a salesperson for the contractor will explain the company will work with the homeowner's insurance carrier to get a good settlement and that the homeowner will not have to pay any more than the amount of their deductible. The salesperson will then ask the homeowner to sign an "authorization" form to allow the salesperson to contact the insurer. Many of the forms state that by signing, the homeowner agrees to have the contractor perform the work allowed by the insurance company in exchange for the insurance claim proceeds.

The homeowner may be left with the mistaken impression that they are still free to pursue bids from other contractors, even after signing the document. However, some of these contract forms contain small print (usually on the back of the document) that says if the homeowner cancels the contract after three business days, the homeowner will owe the contractor a percentage (usually from 15 to 50 percent) of the total claim settlement. This becomes a problem when the homeowner finds another contractor that they prefer to the original contractor.

DLI licenses residential builders, remodelers, roofers and manufactured home installers. To work in Minnesota, these professionals must be licensed. If you hire an unlicensed contractor, you will not have access to the Contractor's Recovery Fund, which is available to compensate consumers who have suffered losses due to a contractor's fraudulent, deceptive or dishonest practices.

Before you hire a contractor, DLI suggests homeowners ask:

• for the contractor's license number, then contact the Construction Codes and Licensing's Enforcement Services unit at DLI to verify the builder is currently licensed and to determine if the contractor has a disciplinary history;
• the contractor how long and where they have been in business;
• for references and check with former customers to see if they were satisfied with the work;
• for a Minnesota business address other than a post office box; and
• for a local phone number where the contractor can be reached during normal business hours.

Avoid contractors that:

• arrive in an unmarked truck or van;
• ask you to sign an "estimate" or "authorization" before you have decided to actually hire them;
• appear to be willing to do the job at an unusually low price;
• only provide a post office box for their business address;
• require full or substantial payment before work begins;
• refuse to provide you with a written estimate or contract;
• refuse to provide you with a state of Minnesota license number;
• refuse to provide you with references;
• show up at your door unsolicited; or
• use high-pressure sales tactics.

Before you sign a contract, make sure it includes:

• a detailed summary of the work to be done;
• a description of materials to be used;
• the total contract price or how the price will be calculated; and
• specific timelines and provisions that address what will happen if the contractor fails to meet the contractual deadlines.

What is the Contractor's Recovery Fund?
The purpose of the Contractor's Recovery Fund is to compensate consumers who have suffered losses due to a licensed contractor's fraudulent, deceptive or dishonest practices, conversion of funds or failure to perform. All licensed contractors are required to pay a fee to the fund.

The total amount that can be paid out against any one licensed contractor is $75,000. If multiple claims are filed against the same contractor they are prorated. In these situations, you may not be able to recover your entire loss. To better protect yourself, you may wish to request that your contractor obtain a performance bond for your specific project in case the contractor does not perform. A performance bond would provide a specific level of protection for your specific project.

If you have a problem or complaint with a residential building contractor
Contact the Construction Codes and Licensing's Enforcement Services unit at 651-539-1610 to discuss your situation with an investigator who may offer suggestions about how to resolve the dispute. If the dispute cannot be resolved, you may submit a written request for a formal investigation.
Contact the Construction Codes and Licensing's Enforcement Services unit at:
Phone: 651-539-1610
Fax: 651-539-0102
March 2010