If Your Borrower Hires a Public Surveyor: A Mortgage Servicer’s Guide

Even outside of the annual hurricane and wildfire season, natural disasters, accidents, and unfortunate events happen on a daily basis. Many of these catastrophic events result in damage to the mortgagor’s property. The mortgage lender often opts for professional representation and hires a public insurance adjuster. The adjuster contacts the mortgagee to inform them that they have been hired by the mortgage lender to resolve the insurance claim on their behalf.

Many mortgage servicers do not fully understand the role of a public appraiser. This article provides some basic information and answers some frequently asked questions.

There are three types of insurance adjusters:

1) Corporate Expert – Works in-house for an insurance company and represents the interests of the insurer only.

2) Independent Assessor – Conducts fieldwork and investigates claims for an insurer.

3) Public Insurance Adjuster – The only type of adjuster licensed exclusively for the insured’s work.

A public insurance adjuster reviews all applicable policies to assess coverage and calculate the amount of damage. The damage is presented to the insurer and finally settled. Sometimes there are disagreements between the insurer and the insured over the amount of damage owed. The public expert will make a strong case for the insured.

How does the PA interact with the mortgage administrator?

Because the insured has certain responsibilities under the terms of the policy, they often rely on a public expert to assist them in identifying and fulfilling those responsibilities. For example, the insured must notify their mortgage administrator of their loss and will be required by the administrator to fill out certain forms and submit claim-related documents.

When issuing property damage claims certificates, the names of the insured/borrower, PV, and mortgagee should be included. The public evaluator and the borrower validate the checks and forward them to the claims servicer. The servicer then deposits the insurance proceeds into a dedicated escrow account. Funds are released from the account based on the loan status and the specific language on the Deed of Trust.

Most often, the PA calculates a percentage of the claim amount and expects its percentage to be paid by each check issued. This is where some of the challenges may arise.

Additional tips:

1) In order for the insured (borrower) to engage a public surveyor, he must sign a contract with the public surveyor detailing all applicable fees. Servicers should receive a copy of this agreement and a document signed by the insured (their borrower) authorizing the public expert to communicate with the servicer. It should set out the nature of their relationship and what types of information the public expert (if any) can obtain about the loan.

2) Many borrowers will be temporarily unable to pay their mortgage when dealing with damage to their property. This is an excellent opportunity to refer the insured to the servicer’s loss mitigation unit to assist the borrower during this time.

3) How is the public surveyor paid if the claims servicer does not release the proceeds?

a. It is the duty of the insured to pay the public appraiser. You can pay them from other proceeds – for example from private property claims.

b. Service providers should obtain the insured’s approval before making any payments to the public appraiser.

c. Courts have ruled that a PA has an equitable lien on the insurance proceeds for his fee. If a borrower retains a PA and then eventually loses their property through foreclosure, the mortgagee is still required to pay the public appraiser’s fees.

4) What if the proceeds are not enough to repair the property?

a. Is the PA seeking additional revenue?

b. What is the reason for the difference?

c. Is the PA considering referring the claim to an assessor (for an independent assessment of the claim)?

i.e. Has a lawyer been hired?

5) Look out for PAs who are heavily involved in the repair process. Some states prohibit a public adjuster who has processed a claim on a property from repairing the same property or having a financial interest in the repair due to a conflict of interest. The servicer should ensure that the property is inspected at every stage of the repair and ensure the borrower documents their satisfaction with the repairs to avoid problems later.

6) What if the public evaluator refuses to endorse and mail the settlement check to the mortgagee?

a. The mortgagee should be in direct communication with the insured and the public surveyor. If necessary, the mortgagee can ask the insurer to pool the funds and ask the court to help resolve it.

7) Is the mortgagee recommended to cooperate with the public surveyor? Yes.

a. As the borrower’s representative, the adjuster has the best knowledge of 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, they can reach out to the borrower to resolve the issue at hand.

8) Who regulates public experts?

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 don’t require a license.

b. Some states have fee caps that regulate the amount a PA can charge for their services. You might want to make sure your borrower is aware of this.

c. As of the date of this article, three states, Alabama, Arkansas and Alaska, do not allow PAs to collect fees and do not recognize PAs.

9) What are some of the things a servicer can do to check the background of the PA?

a. Registration status can be checked on most state Department of Insurance websites in the state where the damage occurred. This verification is facilitated by asking the public appraiser for his license number.

b. Service providers can determine whether the PA is affiliated with a professional association. The most reputable and oldest 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 in assisting the insured in the proper assessment, adjustment and settlement of their claim. As the insured’s only licensed advocates, they should be viewed as a valuable resource in times of need. Maximizing insurance benefit benefits both the mortgagee and the borrower. Like all professions, not all PAs are created equal. If you come across a public adjuster that seems to be a problem, you should contact the state insurance regulator for assistance.