My home flooded in August 2016. I received an insurance payout very timely. My mortgage lender, Whitney bank placed the funds in an escrow account and informed me that I must use a contractor and checks will be made out to the contractor. They further informed me that my insurance money from the escrow account will be treated as a construction loan that will be paid in installments: 33% down payment, 33% at 50% work completion (after inspection by bank) 34% after final inspection by the bank at the completion of the project.
Both me and my contractor accepted the payment Schedule as the Policy of the bank and it was reasonable for both of us. I authorized the payment of the first 33% ($67,000) with the contractor present.
My contractor later befriended the bank manager and started going to see her without my knowledge. On March 2nd 2017 she paid out $102,000 to the contractor without informing me, did not seek my consent and no inspection was done to ensure that 50% work was completed. At that time no work had gone on at my house for 6 weeks and only about 10% work was complete (only drywall hanged but not painted). I found out about the transaction 3 weeks later when I saw the account statement. The bank manager explained to me that she released the money because she ‘googled’ the contractor and saw that he is reputable.
However, the contractor turned out to be fraudulent, brings workers on site 2-3 days per month and has now abandoned the project. I feel like I have been abused by my mortgage lender. Is there any law on how mortgage lenders should disburse insurance proceeds.
Whitney bank was supposed to protect their interest in the property, instead I am going to lose my home because of their irresponsible action-disbursing 50% of my insurance proceeds without an inspection, or my knowledge. Trusting a contractor to pay him upfront without ensuring that he has done the work?
Do I have any legal ground against the bank? Please advise.