Even outside of the annual hurricane and wildfire seasons, natural disasters, accidents, and unfortunate events occur on a daily basis. Many of these catastrophic events result in damage to the mortgagor’s property. The mortgagor often chooses to have professional representation and hires a public insurance adjuster. The adjuster contacts the mortgagor to let them know that they have been hired by the mortgagor to settle the insurance claim on their behalf.
Many mortgage servicers do not fully understand the role of a public adjuster. This article provides basic information and answers some common questions.
There are three types of insurance adjusters:
1) Company Adjuster – Works internally for an insurance company and only represents the interests of the insurer.
2) Independent Adjuster – Performs field work and investigates claims for an insurer.
3) Public Insurance Adjuster – The only type of adjuster licensed to work solely on behalf of the insured.
A public insurance adjuster will review all current policies to assess coverage and calculate the amount of loss. The claim will be presented to the insurer and will finally be settled. Sometimes there is a difference of opinion between the insurer and the insured on the amount of the claim due. The public adjuster will strongly advocate for the insured.
How does the PA interact with the mortgage servicer?
Since the insured has certain duties under the terms of the policy, he or she often relies on a public adjuster to help identify and complete those duties. For example, the insured must notify their mortgage servicer of their loss and the servicer will ask them to complete certain forms and provide documents related to the claim.
When building damage loss drafts are issued, the name of the insured/borrower, PA and mortgagee must be included. The public adjuster and the borrower will endorse the checks and forward them to the servicer. The servicer then places the insurance proceeds into a restricted escrow account. Funds will be released from the account based on the status of the loan and the specific language in the deed of trust.
In most cases, the PA will collect a percentage of the claim amount and expect to be paid that percentage from each check that is written. This is where some of the challenges can arise.
Additional tips:
1) In order for the insured (borrower) to hire a public adjuster, they must sign a contract with the public adjuster and must specify the fees charged. Servicers must obtain a copy of this agreement, as well as a document, signed by the insured (his or her borrower), authorizing the public adjuster to communicate with the servicer. You must specify the nature of your relationship and what information the public adjuster can obtain (if any) about the loan.
2) In dealing with damage to their property, many borrowers will experience a temporary inability to pay their mortgage. This is an excellent opportunity to refer the insured to the servicer’s loss mitigation unit to assist the borrower during this period.
3) How is the public adjuster paid if the trustee does not release the proceeds?
has. It is the insured’s obligation to pay the public adjuster. They may pay for them with other income, such as the personal property claim.
b. The services must obtain the authorization of the insured before making any payment to the public adjuster.
v. Courts have held that a PA has an equitable lien on insurance proceeds for its fee. If a borrower retains a PA and ultimately loses their property through foreclosure, the mortgagee is still obligated to pay the public adjuster’s fees.
4) What if the income is not enough to repair the property?
has. Is the AP chasing additional revenue?
b. What is the reason for the difference?
vs. Is the PA contemplating referring the claim to an appraiser (for an independent appraisal of the claim)?
d. Has the lawyer been hired?
5) Watch for PAs who are heavily involved in the repair process. In some states, if a public adjuster has handled a claim on a property, they are also prohibited from repairing the same property, or having a financial interest in the repair, due to a conflict of interest. The servicer must ensure that the property is inspected at each stage of the repair and ensure that the borrower documents the borrower’s satisfaction with the repairs to avoid future problems.
6) What if the public adjuster refuses to endorse the settlement check and send it to the mortgagee?
has. The mortgagee must be in direct communication with the insurer and the public adjuster. If necessary, the mortgagor can ask the insurer to put up the funds and ask the court to help them settle.
7) Is the mortgagee advised to cooperate with the public adjuster? Yes.
has. As the borrower’s representative, the adjuster is the one most knowledgeable about the claim and in the best position to keep the mortgagee informed.
b. If the mortgagee finds the public adjuster uncooperative or hostile, the mortgagee may contact the borrower to resolve any issues at hand.
8) Who regulates public adjusters?
has. Public insurance adjusters are currently regulated in 46 states by each state’s Department of Insurance, or its equivalent. There are only a handful of states that do not require a license.
b. Some states have fee caps that regulate the amount a PA can charge for its services. You may want to make sure your borrower is aware of this.
vs. As of the date of this article, three states, Alabama, Arkansas, and Alaska, do not allow PAs to charge any fees and do not recognize them.
9) What are some of the things an administrator can do to check the PA’s background?
has. The status of the license can be checked on the Department of Insurance website for most states, in the state where the loss occurred. This verification is facilitated by asking the public adjuster for their license number.
b. Administrators can determine if the PA belongs to any professional trade associations. The oldest and most reputable trade association is the National Association of Public Insurance Adjusters. NAPIA has a strict Code of Ethics that members must adhere to. In addition, NAPIA has minimum educational requirements that must be met.
Public adjusters provide valuable services by helping the insured properly evaluate, adjust, and settle their claim. As the only authorized advocates for the insured, they should be considered a valuable resource in times of need. Maximizing the insurance settlement benefits both the mortgage and the borrower. Like all professions, not all PAs are the same. If you come across a public adjuster that seems like a problem, consider contacting your state’s insurance regulatory authority for help.