New Decision: Lenders Lien for Insurance Proceeds (Alvarez-Mejia v. Bellissimo Prop.)
January 12, 2017

A straggling brief holding over from last year, this considers a decision addressing a mortgage lender’s ability to retain casualty insurance proceeds and an owners consistency in representations to the lender and insurer were at issue in Alvarez-Mejia v. Bellissimo Prop., LLC, Case NO.: 3D15-1258 (Fla. 3d DCA, December 28, 2016).

The owner’s mortgaged property was damaged by fire. Similar to many mortgages, the owner’s mortgage included a “property insurance” provision that stated:

Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender’s security is not lessened. . . . If the restoration or repair is not economically feasible or Lender’s security would be lessened, the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower.

Also similar to many mortgages, the owner’s mortgage also provided that the lender:

shall have the right to hold the insurance proceeds until Lender has had an opportunity to inspect such Property to ensure the work has been completed to Lender’s satisfaction. . . .

The owner’s licensed contractor initially estimated the repairs to be $98,717. In reliance on this estimate the insurer issued checks for $94,162.52, the check payees including the owner and the lender. The lender obtained an appraisal of the exterior of the home at $90,000, less than the repair estimate. The lender asserted that considering the property’s value and the repair estimate, it was not economically feasible to undertake repairs. Alvarez-Mejia then provided a revised repair estimate of $53,117.

In response to the lender continuing to retain the insurance proceeds the owner sued the lender for breach of contract, breach of an implied covenant of good faith and fair dealing, a declaratory judgment, and unjust enrichment. The trial court granted the lender’s motion for summary judgment finding “that it was not economically feasible to repair the property because of the cost to repair was greater than the value of the property.”

The appellate court reversed the summary judgment. The owner’s affidavit submitting the revised repair estimate indicated that the repair was economically feasible. The lender failed to provide an estimate of the property’s value after the requested repairs; thus, the lender did not fulfill the lender’s burden to rebut the owner’s responding assertions.

A vigorous dissent attacked underlying evidentiary issues, and in particular whether the owner properly authenticated the revised affidavit which if not admissible would leave only the original repair estimate which exceeded the home’s value.

This decision highlights what many overlook, a lender’s ability to impound insurance proceeds. The court did not comment upon, but the mortgage provisions purports to allow the lender to not only withhold the proceeds until construction starts, but to withhold the proceeds until after construction. Impounding proceeds may create a cash flow problem for some owners and associations, especially if the owner is unable to have a contractor that will “float” the work until the completion of all work, or obtain and pay for a loan. Impoundment provisions may take on a new significance when counsel negotiates repair contracts for casualty work expected to be paid from insurance proceeds.

The majority decision is silent concerning the practical contradiction between owner’s original repair estimate utilized to obtain insurance proceeds, and the “revised” estimate utilized to justify disbursement from the lender. Does this silence acknowledge a double standard for repair estimates, allowing high estimates to insurers and low estimates for lenders and others. Will looking the other way be allowed when good faith estimates are submitted for issuance of permits and permitting fees? Traditionally, a party cannot offer a witnesses affidavit after a deposition testimony, the affidavit submitted to contradict the testimony. One must wonder what the justification for allowing dueling estimates.

I still have one decision from last year to follow up. An oldie but goodie. More to come.

Michael J. Gelfand

Florida Bar Board Certified Real Estate Attorney

Florida Supreme Court Certified Mediator: Civil Circuit Court & Civil County CourtMichael J. Gelfand

Immediate Past Chair

Real Property, Probate and Trust Law Section of The Florida Bar

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Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section

© 2017 Michael J. Gelfand


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