YES! There are several reasons why and I’ll explain below. But first things first- many people are under the assumption that the mortgage company tells the insurance company when a loan is paid off.
NOPE. The mortgage company’s only obligation is to communicate with the home owner that the loan has been paid, usually via a nice letter that says “Congratulations, your loan has now been satisfied in full.”
They could care less if your homeowners insurance company knows or not. And they are under NO obligation to inform the insurance company the loan has been paid off. So, ultimately, it is YOUR responsibility to tell the insurance company your mortgage is paid off. Remember that.
On to the reasons why next.
If you Don’t Tell Your Insurance Company Your Mortgage is Paid Off, It Can Delay Your Claim Payment
We’ve had at least two recent homeowners claims where the mortgage company still showed on the policy, but the loan had been paid off for some time.
So when the claim check was written, it was written to both the insured and the mortgage company. Why? Because the mortgage company has a financial interest in the property and their interest must be protected. So they become part of the claim settlement.
What happens next? The mortgage company has to endorse the claim check, as well as the insured, in order for the check to be cashed. So, you can imagine the calls that came next….. “Why is the mortgage company’s name on this check?”
If the mortgage company is not local, then it must be mailed and the insured has to wait to receive it back, delaying getting repairs by whatever length of time it takes for the check to be returned to the insured.
And if the repairs are urgent? Then the insured might have to pay out of pocket until the check is received back. And this also assumes the bank will sign the check without any trouble. If there’s an issue, other steps may have to be taken to get the check re-issued with only the insured’s name.
So bottom line- to prevent your claim from going sideways or being delayed, call your insurance company and tell them your mortgage is paid off. In less than 5 minutes, we’ll delete the mortgagee and you’ll be in the clear.
If You Don’t Tell Your Insurance Company Your Mortgage is Paid Off, Your Insurance May Not Be Billed Correctly
Many customers choose to escrow their homeowners insurance, which means it’s included in their monthly house payment and then the mortgage company pays the insurance when it’s due (read our post What is a mortgage escrow account and how does it work for more information).
When you pay off your mortgage, your relationship with the mortgage company for the escrow account ends. Which means no more escrow account and no more mortgage company paying the homeowners insurance premium.
So what happens if the bill is sent to the mortgage company? Simple- they don’t pay it. The policy goes into cancellation status. Worst case scenario, the policy cancels for non-payment. YIKES.
Do yourself (and us) a favor. If you currently have an escrow account and you pay off your mortgage, PLEASE call and let us know. We’ll remove the mortgagee AND you can choose a new payment plan. You’ll save yourself future aggravation and prevent possible policy cancellation.
Need to discuss your Ohio homeowners insurance? Call us at (937) 592-4871 or complete the form below. We’re happy to help!
