There is a recurring issue in the current handling of homeowner's and other property insurance claims. It comes up over and over again: Whether the insurance company's payment on a loss under its first-party policy can be taken by the mortgagor and applied to anything it wants -- such as its own bank account, whether the insurance company's payment on the loss should be applied to restoration or repair of the property that is collateral for the mortgage?
Resolution of this question always or nearly always depends on the terms of the mortgage. By those terms, the bank, mortgage company, other lenders, or their assignees are made loss payees "ATIMA." This means that the insurance company must put them on the check "as their interests may appear." Since their names are on the insurance policy, their names will be on the check. The check cannot be negotiated without their signature or consent, in other words, in terms of the way things work under a mortgage.
In reality, of course, the homeowners-borrowers are the first ones to sign the insurance company's check paying on the loss, then they turn the check over to the mortgagee so as to apply the proceeds to restore or repair the property, i.e., the homeowners' home.
Except that very often they don't.
The mortgagee keeps the money. Their only defense under the mortgage is that restoration or repair of the property is not required when one of two things both happen. First, the restoration or repair is not "economically feasible." Second, "the Lender's security" is "lessened." This is what the standard uniform mortgage instrument approved and issued by Fannie Mae and Freddie Mac says on their websites.
The standard language of the UNIFORM INSTRUMENT approved by Fannie Mae and Freddie Mac for Single-Family homes in Florida is representative of the same standard language found in mortgages across the United States. Paragraph 5 of the Florida uniform mortgage form addresses this issue:
Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender’s security is not lessened.
Exactly the same language was at issue in Alvarez-Mejia v. Bellissimo Properties, LLC, a 2016 2-to-1 decision by a panel of Florida's Third District Court of Appeal in an appeal from the entry of summary judgment for Bellissimo, a defendant and a mortgagee.
The term, "economically feasible," is not defined in the Uniform Mortgage Instrument, and of course it was not defined in the mortgage at bar, either. That was the key to the outcome.
The plaintiff homeowner put on evidence through her affidavit "that it is economically feasible to repair the property because the value of the property with repairs will be significantly greater than the outstanding balance of the mortgage."
The mortgagee-movant Bellissimo did not put on any proof otherwise at or any time after it filed its motion for summary judgment. It "did not provide an estimate of the value of the property after repairs, and therefore did not meet its burden of proof that no genuine issue of material fact exists."
The appellate panel therefore reversed a summary judgment which the trial court entered in favor of the lenders' assignees, Bellissimo Properties, LLC and Vista Goebel, LLC in this case. On the facts, the panel already made clear that there were genuine issues of material fact that prevented the lenders' assignees from obtaining a summary judgment.
On the law, the majority in the state court case was willing to allow the possibility that a jury could determine that repair of the property that increases "the value of the property with repairs will be significantly greater than the outstanding balance of the mortgage."
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This article was originally published on Claims and Issues Blog on July 13, 2018. Reprinted here with permission.
 Paragraph 5 of Fannie Mae/Freddie Mac Form 3010 01/01 FLORIDA--Single Family at page 7 (emphasis added).
 Alvarez-Mejia v. Bellissimo Prop's, LLC, 208 So. 3d 797 (Fla. 3d DCA 2016). Paragraph 5 of Ms. Lily Alvarez-Mejia's mortgage is identical to paragraph 5 of the Uniform Mortgage Instrument quoted in the text. See Alvarez-Mejia, 208 So. 3d at 798.
Bellissimo also "withheld the insurance proceeds" pursuant to section 11 of the mortgage. The majority mentioned this once, as a fact, and then never mentioned it again, nor did they ever quote it. Alvarez-Mejia, 208 So. 3d at 798. The dissenting judge neither quoted nor mentioned paragraph 11 of the mortgage, at all.
Paragraph 11 of the UNIFORM INSTRUMENT relates to "Assignment of Miscellaneous Proceeds; Forfeiture." Paragraph 11 of Fannie Mae/Freddie Mac Form 3010 01/01 FLORIDA--Single Family at page 10 (boldface in original). Paragraph 5 of the UNIFORM INSTRUMENT, titled "Property Insurance," was the provision which contained the language at issue in the case.
 Alvarez-Mejia, 208 So. 3d at 799.
 Alvarez-Mejia, 208 So. 3d at 799.
 Alvarez-Mejia, 208 So. 3d at 799 (emphasis added).