Overcoming Third-Party Checks
October 11, 2006
You've sold the job, got an agreed scope, and did the work - that was the easy part. Now you have to collect. It used to be that this was the easiest and the second most rewarding part of the job (apart from the customer's smiling face). Recently, however, with an increasing tendency by the insurance companies to name mortgage companies to virtually all checks, this has become the hardest part of the process. So how do you get around it? Do you learn to live with 60-day collection times? Do you require payment from the customer and direct them to the mortgage company for reimbursement? Do you stop doing restoration work? Or do you simply evolve as a business and work smarter? Hopefully the choice is easy - now all you have to do is find out how to do it better.
In just about every homeowner's policy in existence, there is what is called a "mortgage clause." If you look in your own policy you'll probably find this buried on page 16 or so, worded something like this:
"XIV: Mortgage Clause
Any loss payable under applicable coverage will be paid to named mortgagees and you, as interests appear. If your claim is denied, that denial may not apply to a valid mortgagee claim...."
So not only is the third-party check a trend in the insurance business, it's a contract. And chances are, it is not going away soon. In order for you to get paid, the customer and the mortgage holder must sign off on the check. A mortgage clause requires the insurance company to list the mortgage holder on "any loss payable."
Now, of course, this does not always happen and those of us with $200 claims are very thankful for this. The reality is, however, is that it can happen anytime on any loss. The true reason why the mortgage clause was developed was to protect the mortgage holder from mechanic's liens and other liabilities. The mortgage clause not only does this, but it also ensures reimbursement to the mortgage holder in the case of arson claims or other negligent claims. This is why it is important to the mortgage company and it's also why homeowner's insurance is a requirement on any home loan. That's why you need to not only live with it, but also to learn how to deal with it.
The key to dealing with third-party checks is information. Even more importantly, your success will be determined based on how you handle this information. The most important step in putting this information to work is to do your homework prior to the completion of the job. You need to know not only the address of the mortgage company, but also how they process payment and who to contact when the system fails. After you do your homework, don't hesitate to get the customer involved. Remember that this is the mortgage company's true customer and the one that they listen to. The third step is to monitor your progress: know not only what works, but at what cost.
Preparation is a critical element in every part of the restoration business, including payment. When dealing with mortgage companies, the more information you have, the better. From the beginning of the claim, determine whether or not a mortgage company will be named on the check. Sometimes the insurance company will process payment at the beginning of the loss and this information will be evident early. Other times an insurance company may not process payment until after the work has been completed. Although this will make it more difficult, you should inquire with the insurance company regarding their payment rules and what mortgage company, if any, will be listed on the check.
Some insurance companies do not make a practice of including a mortgage company on any checks. Other companies include a mortgage holder on every check. Still others only include mortgage holders on checks over a certain value. In some cases, total payments over two, five or even ten thousand dollars require the inclusion of a mortgage holder while amounts under these amounts may not. This tells you not only when you will encounter this problem, but it may also be something you want to consider when writing an estimate for repairs that's just several dollars over the threshold level. In these cases, the additional pennies may not warrant the trouble and delay in payment. Keep in mind that frequently these threshold levels not only include your payment, but the total of all payments to other contractors, governmental departments and even the customer. Make sure you know all the facts before making any decisions on this matter.
After you determine whether or not a mortgage company will be listed on the check, you now need to start to accumulate information. Obviously you will need such basic information as the customer's name, address and phone number, but you may also be required to provide such information as the customer's social security number and loan number. While the customer may have no problem supplying the basic information, he or she may have reservations about providing information such as the social security number and the loan number. Make sure you take the time to explain why this information is important, and ensure that the customer's privacy is protected before and after completion of the project. If a customer is still resistant to supply this information, you might decide to have them handle the mortgage company and require them to have payment by the completion date. You might even require customers that do not wish to provide this information to pay for the job at the end of the project and then seek reimbursement from the mortgage company at a later date. This is a decision that you must make based upon your company's philosophy and the type of customer you target. This cannot only be risky, but you will typically find that the more control you can exert over the payment process, the faster and more efficient it will be accomplished.
A form that may become particularly helpful during the mortgage holder process is a "limited power of attorney." This is a document that may allow you to represent the customer in conversations with the mortgage company and be present for any inspections that need to take place. This can be a great tool for those conversations and letters that must be sent the mortgage company to obtain payment. Keep in mind that, even though a customer may sign a limited power of attorney, the mortgage holder is not obliged to recognize it. Even with a limited power of attorney you may need the customer's help in getting cooperation from the mortgage company. When crafting a limited power of attorney, make sure that it is limited to a specific claim payment situation and conforms to any applicable legal standards. Although helpful, this document may have limited applications and may even be prohibited by insurance companies' guidelines, so make sure you check this before adopting it as part of your boilerplate work authorization.
With this information in hand, you are now ready to contact the mortgage company. You can frequently get all the information you need and telephone numbers in a five-minute Internet search or with a simple call to the customer. Make a basic call to the mortgage company's loss draft department and find out what they require in order to endorse a check. You may even be able to get endorsement requirements from the mortgage company's web site. Frequently, they will ask for you to include an itemized estimate; a certificate of completion; a lien waiver; the check draft; and a cover letter with an account number. Even if they don't ask for this information, it is always a good idea to include all of it with your correspondence. If you don't, you may get the check returned to you with a request for more information. This can be expensive and time consuming, so include everything from the beginning. You may even notice that the mortgage company may require an inspection to determine if the repairs were actually performed and completed. Schedule this in advance so that it will be perfectly timed with the completion of the job and you give enough time for the mortgage company to act. Don't be surprised if this process takes up to a week to arrange. Any more than a week, and you and the customer may need to pressure for an earlier date. If an inspection charge is required, make sure that you make the customer aware of this additional expense and have them ready with payment at the time of the inspection.
If you are lucky enough to have a mortgage company that will handle the endorsement locally, make sure to keep the name and number of the local contact for possible use on another claim. Local endorsement is always favored over national endorsement as the process will typically be easier and faster. As a general rule, always try to contact the local office of the mortgage holder before going after the national office. Although more companies are increasingly handling this through a centralized office, the rare local endorsement office is a treasure.
Part of doing your homework is also finding out what type of loan you are dealing with. Just because the work was done to a residential property doesn't mean that it is a standard homeowner's mortgage. After further investigation, you may find that the mortgage loan is a commercial loan rather than a homeowner's loan. This is important, because it will often require additional paperwork such as company financial data and corporate documents.
Once you have everything assembled and ready to submit, send the information in a format that can be tracked. Although certified letters can sometimes be refused, FedEx or other special carriers can give you the same result at a faster pace and with less hassle. Tracking the delivery date of the endorsement request is critical when sent to a centralized loss draft department that will often lose paperwork and deny that they have received the request. With a signature and tracking number you can tell when it was received and use this to your advantage. You may also want to enclose a self-addressed express envelope to track it on the way back.
Now that's it's been sent, it is time to wait. If you have done your homework, you should receive the endorsed check within two weeks. If this does not occur, don't hesitate to call to determine the progress. Sometimes you'll find that they need some other document (which they may or may not have indicated in their original instructions) and the check has been sitting in limbo until you called. With unknown mortgage companies, it may not even hurt to call within three days of sending the package, just to make sure that it has been received and that they have everything they need.
Assuming that everything has been done correctly, you still might encounter obstacles. If you haven't already involved the customer, this is a perfect time. Obstacles such as lack of communication from the mortgage company, multiple mortgages and slow processing times can sometimes be easily rectified with one call by the customer. In this case, the general customer service phone number may be the resource.
After receiving payment, there is still more work to do. Keep a list of various mortgage company contacts as well as a listing of required documents so that the second time will be easier. After reviewing this list, you may even find out that some of the mortgage companies share a common loss draft department that you can reference in future correspondence. Track not only contacts, but expenses as well. Just like anything else, collection costs are a job cost and you should evaluate your projects on the basis of their results. This will not only allow you to understand how to improve your company, but also how to choose your customers.
All of these suggestions certainly can't create any additional revenue, but it can eliminate frustration, improve your days to collect and allow you to respond to the needs of more customers.