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New bill could force mortgage companies to finally tell you how much you'll be paid if your home is damaged

“This bill is a direct result of the lessons we learned during the Marshall Fire,”
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A new bill introduced by two Boulder-area Democrats could force mortgage companies in Colorado to disclose information to homeowners about the disbursement of insurance proceeds after extreme cases like the Marshall Fire.

Rep Kyle Brown, D-Boulder, who is co-prime sponsoring House Bill 24-1011 with Boulder-area Rep. Judy Amabile, told Yellow Scene Magazine that the bill is designed to bring more transparency to the insurance claims process. If passed, the bill would also create a civil cause of action for homeowners to sue mortgage companies who do not disclose information about the insurance payment process.

The first hearing for the bill is scheduled for January 25.

“This bill is a direct result of the lessons we learned during the Marshall Fire,” Brown said. “So for those folks who might face a disaster or a fire or a flood in their home in the future, this bill will provide some important protections.”

Homeowners often rely on their insurance policies to cover the cost of repairing significant damage to their home, or to completely rebuild it in extreme cases like the Marshall Fire. Navigating the process to get that insurance check can be complicated enough for the few people who own their homes outright. But it can feel like a sisyphean task for the majority of homeowners who hold mortgages.

When a mortgaged home is damaged or destroyed, insurance companies write claims checks to both the mortgage company and the homeowner because both entities have ownership interests in the property. The mortgage company is responsible for releasing the funds to the homeowner, but the terms and conditions of the release vary by institution, Brown said. 

The bill would also require mortgage companies to pay homeowners any excess insurance proceeds that are left after the mortgage is paid off. For example, if a homeowner owes $200,000 on their mortgage and receives an insurance payment of $400,000 for damages incurred, then the mortgage company would be required to disburse the entire $400,000. Right now there is no state rule requiring them to do so, Brown explained.

“When people are rebuilding and repairing their homes, they need to have access to the capital that they’re entitled to under their insurance policy,” Brown said. “It allows them to rebuild their homes so that they can move on with their lives in whatever way they need.”

The bill was introduced at a time when housing affordability has become a top priority under the Gold Dome. Gov. Jared Polis noted during his State of the State address on January 11 2024 that housing is the number one issue for most voters in Colorado.

“There is a real sense of hopelessness and despair in our state around housing that’s on par, in many ways, with how people feel about the divisiveness of our national politics,” Polis said.

Colorado democrats have said they will try to pass multiple bills to help local governments access the tools to meet their affordable housing goals instead of pushing through one large legislative package like last year, Colorado Newsline reported.

“That’s something that is going to provide a roadmap for each individual community and region, to know what the need is, what the progress is in meeting that need and what they need to do from a menu of options to get to the goal,” Senate President Steve Fenberg, D-Boulder, told Newsline.