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.

  • 6
    Have you told the insurance company what happened? They might be able to advise you as well. Have you contacted anyone above the bank manager? Why are you going to lose your home?
    – D Stanley
    Nov 27, 2017 at 20:18
  • 16
    Talk to a lawyer. I am not one, but I'm sure you could find one very interested in your case. The amount of money is too large for you too rely on internet advice, in my opinion. Nov 27, 2017 at 21:25
  • 7
    Rely on @Grade'Eh'Bacon 's internet advice! Lawyers will love to get this case. The bank manager's actions were likely criminal, this is more than can be explained by incompetence. I don't think the bank will have any chance not to fix the problem, and the bank manager will be unlikely to keep her job. Get a good lawyer first, who will tell you which steps to take and who to contact in which order to avoid making any costly mistakes.
    – gnasher729
    Nov 28, 2017 at 7:20
  • 1
    I don't think there are specific laws how mortgage providers should handle such money. The fact is that they took your money and gave it away to a criminal, which is very likely just theft.
    – gnasher729
    Nov 28, 2017 at 7:23
  • 3
    Thanks to all of you who responded to my post. I have found a lawyer who is working with me now. I was afraid I was going to lose my house because it is still damaged, not yet rebuilt after the flood and my insurance money is gone after being mishandled by the mortgage lender. If I sell the damaged house, I can pay off the mortgage but the equity of about $120,000 I had before the flood is gone. My insurance payout was actually bigger than my outstanding loan; I could have paid off the mortgage with it and have a portion left over, but I didn't know about that option last year. Nov 29, 2017 at 16:19

1 Answer 1


Get a lawyer.

If your description is correct, both your bank and the contractor violated their contractual obligations to you. The bank might have acted negligent with your money and the contractor did not fulfill their contract and disappeared with the money.

When you tell your lawyer the whole story, they will advise you who of them is the easier target to take legal actions against and do the rest for you.

If you communicate further with the bank, go over the head of the manager and contact their superior. If your story is correct, they will likely get fired for it. So if you communicate with the manager they will try what they can to buy time and sweep the story under the rug.

  • 3
    Phillip, Thank you for your advice. I tried contacting more senior management at the bank and they failed to help me. I am now working with a law firm who wrote a demand letter to the bank's Legal Counsel. The bank responded and prefers to handle this in-house and not go to litigation. After Xmass, my lawyers will be working on a settlement figure to present to the bank. The same lawyers will be preparing a lawsuit against the contractor, but dealing with the bank first will enable me to get the money to rebuild my house and at least live normally again as we pursue the contractor. Thanks! Dec 22, 2017 at 15:35

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