Often times in sinkhole litigation, a policy holder is confronted with a lienholder interest. This often happens in certain cases during the settlement discussions of a policy claim and revolves around the Insurance Company or defendant's refusal to issue settlement funds unless the lienholder interest regarding the property is sufficiently encumbering the settlement check.
Typically, when dealing with homeowner's insurance policies, coverage's are typically divided into several distinct areas, including structural components, personal property, and additional living expenses. A typical homeowner's insurance policy typically has language requiring the mortgage holder (lienholder interest) to be named as a payee on any settlement drafts. This requirement is a condition of the policy contract and is done primarily as a protection to the bank's interest which is to make sure that the collateral (home) is repaired and not left with continued damage.
Often times an insurance company will request that additional encumbrances be made to settlement funds. This request however is not supported by Florida Statutes which clarify the responsibility of the insurance carrier when preparing payment drafts. Florida statues make it clear that coverage's which do not involve lienholder interests (typically personal property and additional living expenses reimbursements) are to be made directly to the policy holder, without the need to require an additional mortgage holder endorsement (see Florida Statute 627.70121).
Because the payout of settlement funds and the incorporation of lienholder interests can be very technical it is always advised that each policy holder seek the representation of a sinkhole attorney with experience in insurance disputes. Unless the policyholder's best interests are otherwise protected the homeowner may receive a settlement that is over encumbered with lienholder interests.