California Is Investigating Delayed Wildfire Insurance Payouts; Lenders May Be Holding the Check; What Homeowners Need to Know

October 16, 2026 | Michael Belfor

Here is a mortgage detail most homeowners never think about until something goes terribly wrong:

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If your home is badly damaged or destroyed, the insurance check may not simply be handed to you.

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Your mortgage lender or servicer may also have control over the insurance proceeds.

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That is exactly what California is now investigating after complaints from survivors of the Eaton and Palisades fires.

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On October 15, California ordered financial institutions to report how they have handled insurance payouts for fire survivors — including how long funds were held, why money was delayed, and whether proceeds were still being held after a mortgage was paid off. DFPI

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That is not a small issue.

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When someone is trying to rebuild a home, access to the insurance money can determine whether construction moves forward or stops.

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I. WHY DOES THE MORTGAGE COMPANY GET INVOLVED AT ALL?

A homeowner pays for the insurance policy.

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So it is understandable to ask:

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“Why does my lender get to touch the check?”

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Because the lender also has a financial interest in the property.

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The home is the collateral securing the mortgage.

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If a major loss occurs, the lender wants to make sure insurance proceeds are actually used to repair or rebuild that collateral.

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That is why large property-loss checks are often made payable to both the homeowner and the mortgage company.

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The servicer may place the money into a restricted account and release it in stages as rebuilding progresses.

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That process itself is not unusual.

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The problem is when the process becomes unnecessarily slow.

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II. CALIFORNIA HAS RECEIVED MORE THAN 160 COMPLAINTS

California’s Department of Financial Protection and Innovation says it has received more than 160 confidential consumer complaints since January 2025 involving delays or other problems with insurance disbursements. Business and Consumer Services Agency

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Now the state wants detailed information from financial institutions.

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The mandatory reporting order asks lenders to explain:

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How much insurance money they received.

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How much was released to homeowners.

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How long disbursements took.

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Why funds were delayed or withheld.

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And whether money was retained even after a mortgage had been fully paid.

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California officials warned that firms that improperly delay or deny access to funds could face enforcement under state or federal consumer-protection laws. DFPI

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That should get everyone’s attention.

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III. INSURANCE MONEY CAN BECOME A CONSTRUCTION-FUNDING PROBLEM

This is where the mortgage side and the rebuilding side collide.

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Imagine your insurance company approves a large claim.

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That sounds like progress.

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But if the mortgage servicer controls the proceeds, the homeowner may still need to satisfy documentation and inspection requirements before each portion of the money is released.

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Meanwhile:

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Contractors need deposits.

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Materials need to be ordered.

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Permits cost money.

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Temporary housing may still be expensive.

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Construction costs can change.

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And every delay can make the rebuild harder.

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The homeowner may technically have an insurance settlement while still struggling to access enough cash to keep construction moving.

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That is an incredibly frustrating position.

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IV. CALIFORNIA ALREADY CHANGED THE RULES ON INTEREST

There is another important piece.

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California enacted AB 493 after the Los Angeles fires.

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The law requires financial institutions to pay homeowners the interest earned on certain post-loss insurance proceeds being held in escrow. Business and Consumer Services Agency

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In other words:

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If a lender is holding disaster-related insurance money while the homeowner waits for rebuilding funds to be released, the lender should not simply benefit from the interest on that money.

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That interest belongs to the homeowner under the new California protections when the law applies.

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The state is now looking more closely at whether the overall disbursement process is working the way it should.

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V. WHAT SHOULD A HOMEOWNER ASK AFTER A MAJOR LOSS?

If you ever experience a major property loss and there is a mortgage on the home, I would ask the mortgage servicer these questions immediately:

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Where will the insurance proceeds be deposited?

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What documents are required before money can be released?

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Will funds be released all at once or in draws?

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Will inspections be required?

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How long does each draw typically take?

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Who handles disputes or appeals?

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What happens if the mortgage is paid off during the process?

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And who receives the interest earned while the money is being held?

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Do not wait until the contractor is asking for the next payment to figure this out.

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Get the process in writing early.

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VI. REBUILDING MAY REQUIRE MORE THAN THE INSURANCE CHECK

There is another issue California has been dealing with:

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Insurance proceeds may not cover the full cost of rebuilding.

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Construction costs can exceed policy limits.

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Code upgrades can add expenses.

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Debris removal, design changes and permitting can create additional costs.

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That is why California launched a new $100 million recovery-financing program in September aimed at helping eligible disaster survivors close the gap between insurance proceeds and rebuilding costs. Governor of California

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For some homeowners, rebuilding may involve several pieces:

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Insurance proceeds.

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Available savings.

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Mortgage relief.

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Construction financing.

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Home-equity resources.

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Or another rebuilding loan.

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The financing strategy has to account for all of them.

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THE BOTTOM LINE

Most homeowners assume that if something catastrophic happens, the insurance company writes a check and rebuilding begins.

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It can be much more complicated.

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When a mortgage exists, the lender or servicer may control how large insurance proceeds are released because the property is also their collateral.

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That oversight can be legitimate.

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Unnecessary delays are another story.

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California is now demanding answers from financial institutions after more than 160 complaints involving delayed or problematic insurance payouts following the Los Angeles fires. Business and Consumer Services Agency

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The lesson for every California homeowner is simple:

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Know who controls the money before you need it.

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Understand the insurance coverage.

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Understand the mortgage-servicer process.

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And after a major loss, get the disbursement requirements in writing immediately.

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Because receiving an insurance settlement and actually having the money available to rebuild can be two very different things.

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ABOUT MICHAEL BELFOR

Michael Belfor is a Branch Manager and Loan Originator with American Pacific Mortgage, bringing approximately 24 years of mortgage lending experience.

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An APM President's Club and Top 1% originator since 2017, Michael helps homebuyers, homeowners, and real estate investors navigate conventional, jumbo, FHA, VA, Non-QM, DSCR, TIC, condo, renovation, construction and other mortgage financing solutions.

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California Investigates Delayed Wildfire Insurance Payouts Held by Mortgage Lenders

California is investigating mortgage lenders over delayed wildfire insurance proceeds. Learn why servicers may control insurance checks and what homeowners should ask after a major property loss.

California wildfire insurance payout, mortgage lender insurance check, insurance proceeds mortgage servicer, LA fire rebuilding, California construction financing, wildfire mortgage relief