From the Brevard Times
As if the underwater U.S. housing market needed another curve ball, the prospect of billions of dollars in insurance claims on underwater homes could mean a financial and litigation windfall for the banks.
Although mortgage documents and individual state laws vary, common language in mortgage documents requires that any insurance check be made out to both the bank and the homeowner. The homeowner is then contractually required to sign the insurance check over to the bank which is then held in escrow by the bank.
Banks can make many legal and equitable arguments as to why the property should not be rebuilt, but rather deemed a total loss. If deemed a total loss, the banks could then be able to claim that the insurance proceeds cover the outstanding mortgage balance.
But before a bank can make such claims, it still has to prove that it owns the right to foreclose on the subject property in the first place.
However, if the destroyed property is in foreclosure, the now homeless homeowner would be less likely to fight the foreclosure proceeding in order to stay in an dilapidated structure because such legal arguments become more academic rather than personally tangible.
