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Probe: Banks withholding $200M in Sandy payouts

Jaime Green sits in her gutted Oceanside home,

Jaime Green sits in her gutted Oceanside home, which was swamped by superstorm Sandy. In late December, she had been waiting for more than a month for Citibank to send her insurance settlement check. (Dec. 29, 2012) Credit: Steve Pfost

Banks and mortgage servicers are withholding more than $200 million in insurance settlements from New Yorkers whose homes were battered by superstorm Sandy, hobbling efforts to rebuild, state officials said.

An investigation by the state Department of Finance found Citigroup, Bank of America, J.P. Morgan Chase and others are holding a total $208 million in settlements to 6,600 families statewide, an average of $31,000 per household.

Insurance companies have long made large settlement checks payable to both homeowners and their mortgage lenders, which routinely put the money in escrow accounts to prevent fraud and ensure houses are repaired. Since Sandy, however, the practice has been vexing for Long Islanders trying to rebuild, prompting many to delay repairs, deplete savings or borrow to pay contractors themselves.

"Families need to be able to return to their homes," Gov. Andrew M. Cuomo said in a statement. "After insurance companies have sent homeowners checks to pay for repairs, the money should not be sitting with the bank because of red tape."

Banks contend they have been overwhelmed by the volume and are doing their best to strike a balance between the needs of homeowners and the interests of mortgage bond investors, who could lose millions if people walk away from gutted houses.

"We are committed to working as quickly as possible under the requirements of investors, insurers and others to settle insurance claims for customers impacted by Sandy," Citibank spokesman Mark Rodgers said.

In many cases, lenders and mortgage servicers are bound by guidelines established by mortgage giants Freddie Mac and Fannie Mae. They include requiring banks to inspect repairs and ensure all contractors are licensed.

Homeowners, however, say the system further bedevils the already crushing task of trying to rebuild after a disaster.

With contractors in high demand, it's hard to find ones that are licensed. Many tradesmen want more money up front than lenders will disburse. And waiting for banks to endorse checks and inspect repairs adds to delays, homeowners say.

In November, Marilyn Tippenhauer received a $7,600 settlement from Liberty Mutual to replace roof shingles that Sandy ripped from her Elmont home. A contractor fixed the damage in mid December. Ten weeks later, Tippenhauer is still waiting for her mortgage servicer, Ocwen Financial Corp. of Atlanta, to release half the money, she said.

"I am fuming. I am purple right now," said Tippenhauer, who took out a credit union loan to pay the roofer. An Ocwen spokesman declined to comment on Tippenhauer's situation, but said, "our company is supporting Governor Cuomo's relief initiatives for Hurricane Sandy-impacted homeowners."

Cuomo has sent letters to mortgage giants Fannie Mae and Freddie Mac, urging them to loosen their rules. Spokesmen for the agencies said they have already taken steps to speed the process.State Sen. Charles Fuschillo (R-Merrick), meanwhile, is urging banks to open local offices specifically to handle insurance settlements so homeowners can avoid mailing checks to corporate headquarters and have their questions answered without waiting on hold.

Cashing settlement checks

Insurance companies typically write settlement checks to both homeowners and their mortgage lenders, who are allowed to hold money in escrow to ensure houses are properly fixed.

Here is what typically happens:

Banks release as much as $20,000 for homeowners to start rebuilding.

The rest is held in escrow; any interest is supposed to benefit the homeowner.

The next payment follows an inspection, typically when work is 50 percent finished.

The last payment arrives when work is 95 to 100 percent complete.

Homeowners who feel banks or loans servicers are taking too long to release settlements should call the New York State Department of Financial Services at 800-339-1759.

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