When Your Borrower Hires a Public Adjuster: A Guide for Mortgage Servicers
Even outside of the annual hurricane and wildfire seasons, natural disasters, accidents, and unfortunate events occur daily. 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 inform him that he has been hired by the mortgagor to settle the insurance claim on his 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 evaluate coverage and calculate the amount of loss. The claim will be submitted to the insurer and ultimately settled. Sometimes there is a difference of opinion between the insurer and the insured about the amount of the claim owed. 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, they often rely on a public adjuster to help them 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, the PA and the mortgagee must be included. The public adjuster and the borrower will endorse the checks and forward them to the servicer. The trustee then places the insurance proceeds in 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 of each check issued. This is where some of the challenges can arise.
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 (your borrower), authorizing the public adjuster to contact the servicer. You must specify the nature of your relationship and what information (if any) the public adjuster can obtain 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 policyholder to the servicer’s loss mitigation unit to assist the borrower during this period.
3) How is the public adjuster paid if the administrator does not release the proceeds?
A. It is the obligation of the insured to pay the public adjuster. They can pay for them with other income, such as personal property claim.
b. Services must obtain authorization from the insured before any payment is made to the public adjuster.
Against 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 to foreclosure, the mortgage is still required to pay the public adjuster’s fees.
4) What if the income is not enough to repair the property?
A. Is the PA pursuing additional revenue?
b. What is the reason for the difference?
vs Is the PA contemplating referring the claim to an adjuster (for an independent assessment of the claim)?
d. Has the lawyer been retained?
5) Be on the lookout 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 his satisfaction with the repairs to avoid future problems.
6) What happens if the public adjuster refuses to endorse the settlement check and send it to the mortgagee?
A. The mortgagee must be in direct communication with the insurer and the public adjuster. If necessary, the mortgagee can ask the insurer to interpose the funds and ask the court to help them settle.
7) Is the mortgagee advised to cooperate with the public adjuster? Yeah.
A. As the borrower’s representative, the adjuster has the most knowledge about the claim and is in the best position to keep the mortgagee informed.
b. If the mortgagee finds that the public adjuster is uncooperative or hostile, he or she may contact the borrower to resolve any issues at hand.
8) Who regulates public adjusters?
A. 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 how much 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?
A. The status of the license can be verified on the website of the Insurance Department of 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 a professional trade association. 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 policyholder’s only authorized advocates, they should be considered a valuable resource in times of need. Maximizing the insurance payout benefits both the mortgage and the borrower. Like all professions, not all PAs are the same. If you come across a public adjuster that appears to be a problem, consider contacting your state’s insurance regulatory authority for assistance.