October 17, 2012

We are getting more and more inquiries regarding situations where a home has suffered damages from a natural disaster (such as a flood, fire, etc.) and the insurer issues a check for repairs which is made out to the homeowner and the alleged “lien holder” (the foreclosing party), who then refuses to sign off on the check so that the homeowner can make the repairs. The “bank” claims that they can lawfully withhold the insurance proceeds to apply them towards the alleged debt on the mortgage loan, thereby not permitting the homeowner to make the necessary repairs and placing the homeowner in an even more precarious position. We have been presented with this situation in cases in Tennessee, South Carolina, and Florida to date.

The situation has become so bad that we have had the insurer in one case file an interpleader action where the insurance proceeds are placed into escrow while the rights to the money are litigated. In fact, the insurer told us that they have had to resort to this procedure quite a bit lately due to the lack of cooperation from the “banks” in permitting the homeowner to take the insurance proceeds to pay for the necessary repairs.

This conduct by the “banks” is abhorrent, and we are aware of no decision (case law) which permits a foreclosing party in a contested foreclosure to keep insurance proceeds specifically paid for repairs and to apply same to the disputed debt. Thus, as we have had to do in so many other situations where there is no precedent, we will have to force this issue before the courts.

Separately, Mr. Barnes has recently been retained to prosecute an appeal of a denial of reconsideration of a grant of stay relief in a securitization case to the U.S. 10th Circuit Bankruptcy Appellate Panel; an appeal of a summary judgment in Hawaii; and has also been retained to appeal a summary judgment to the Federal 6th Circuit arising out of a case in Tennessee in another securitization case.

Jeff Barnes, Esq.,