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Settling up.

Mortgage servicers need help when it comes to doing battle with insurance policy adjusters on foreclosed properties. One company found a niche in taking on the insurance claims' status quo on behalf of servicers.

DAVID COOK DOES NOT CLAIM to be a wizard of the business world, only a fortunate guy who happened upon a novel opportunity that he has turned into an enterprise that this year will post $5 million dollars in sales.

Cook, the president of Superior Home Services, based in Houston, is an enthusiastic fellow. Since creating Superior in 1984, he has channeled that enthusiasm and some hard work into a good idea that, in the eyes of some, has revolutionized the settlement of insurance losses by mortgage lending institutions.

What Superior Home Services does, through its 15 home-office employees, and its hundreds of field representatives throughout the United States, is provide a service for lending institutions that verifies insurance settlements on mortgaged properties that are in the foreclosure process. Cook says his company has pulled together a unique staff whose expertise covers the intricacies of three different businesses--mortgage servicing, home-building and insurance claims. Cook says that 80 percent of his home-office staff has come directly from the mortgage servicing business, so they know first hand, the countless details of foreclosure servicing.

Through its relationships with sub-contractors, including carpenters, painters and others, his company has commissioned repairs in every state in the union, including Alaska, but so far excluding Hawaii.

Cook, whose background was in the homebuilding/development business going back to 1977, says he came upon the unique niche that Superior now serves when he discovered, in the course of rehabilitating houses for mortgage servicers, that they didn't know how to file an insurance claim to recover losses under the defaulted borrower's hazard insurance policy.

Cook explains Superior's evolution as a company: "We stumbled onto the idea and now everyone is saying, 'where have you been?' We started by doing REOs on foreclosed real estate properties, and rehabilitating them to get them into marketable condition. We discovered that a number of the properties that we were rehabilitating had damage that we thought the insurance company should be responsible for. We then started finding out if there were policies in place, and if so, how to assist in the presentation of a claim. We educated ourselves into this whole |aspect of the business~ by actually starting to do it."

Cook, who describes himself as an entrepreneur with a real estate background, believes that his company fills a void in the industry by enabling lending institutions to be represented in an area where they have little or no expertise--in the complex area of foreclosures and insurance claims resolution.

"Nobody at the servicing organization knew what to do with these claims. We had to do everything. We had to read the policies. We had to talk to the insurance companies and we had to learn how to present the claim," Cook recalls.

Eventually, Cook says it was around late 1987, Superior Home Services directed all its energy and resources to insurance claims and abandoned its REO business altogether. Currently, Cook says, his company is representing 17 major mortgage lending institutions and it routinely processes about 300-500 insurance claims per month.

As to how it all got started, Cook explains, "First we assisted with one claim, then we helped on another claim and so on. We learned, over the years, about the particulars of each state |regarding~ how to present a claim and have it honored. You're dealing with the lienholder in one section of the country that loans money on a home in another section of the country and we're trying to get all this information exchanged."

"Since launching Superior Home Services in Houston in the mid-1980s, Superior has expanded to provide its services to lenders throughout the United States.

Cook notes, "We represent the lienholder on delinquent and foreclosed properties. We monitor the property through the foreclosure cycle to see if it has been damaged." Superior will "recommend to the mortgage companies that they file the claims which we expect to be paid. These are claims that heretofore may have been customarily denied or an inaccurate amount of money offered to settle the claim," Cook explained.

In effect, what it amounts to is that Superior Home Services steps into the shoes of the lending institution after a borrower defaults on a loan.

"If you purchase a piece of property and a lender loans you the money to buy the property, you must have a hazard insurance policy on that house. If a mortgagor defaults on a loan and during the foreclosure cycle it burns, gets vandalized or a car runs into it, or anything else that could interfere with the value of the collateral, the servicer has a right to file a claim with the insurance company to protect it from losing the value of its collateral. My job is to represent the servicer," Cook said.

"When a borrower goes delinquent, the mortgage company has the property inspected to see if the occupants are still in the house or if they have abandoned the property. If they have abandoned the property, which is common, it is inspected to see if there is any damage. If the borrower got mad because the lender was about to foreclose and on the way out, they stole all the cabinet, punched holes in the sheetrock and set fire to the property, the lienholder has protection under its hazard insurance policy so that the integrity of its collateral is not jeopardized," Cook says.

Our job is to recommend presentation of the claim to the insurance company so that it is viewed in the most favorable light and it is accurately paid. Before we came into existence, the lenders typically accepted whatever the insurance company told them," Cook explains.

Though Cook concedes there are a few other companies in the United States that attempt to offer similar services, he contends that none bring to it the depth of expertise that his company brings to the process.

Cook explains what the ordinary mortgage servicer is up against in getting a hazard insurance claim resolved fairly. "A claims manager for a national insurance company told me that it was the policy of his institution that when a lender filed a claim under the mortgagee's clause, the standard procedure was to deny the claim. If the lender came back and fought the claim, then they would assign it to an adjuster. But many of the lenders do not challenge these denials, so why spend money to assign it to an adjuster?"

Cook is not critical of the insurance applying industry for applying what he believes are understandable business practices.

"Now, if you look at it from the insurance company's perspective, that makes good business sense. On the other hand, if you look at it from the perspective of the lending institution, unless they have knowledgeable people inside the company, they have no way of going back and challenging these denials. They don't have the expertise relative to insurance procedures or policies. They don't know what their responsibilities are. Therefore, they don't have the ability to challenge these claim denials," Cook explained.

Superior Homes has developed a system to standardize claims evaluations throughout the United States. "We have a nationwide network of subcontractors who work for us and give us information from the field. They feed information to us so we can get a good picture of the damage from this office.

"Our people around the nation are trained by us to analyzed the loss so we can get an accurate picture of the extent of the loss. We send out into the field what is called a tic sheet. This tic sheet has categories so that |the personal~ inspecting the house can check off various items, such as: door missing, hole in the sheetrock, carpet missing, light fixture missing and so on. Then they take pictures of the rooms so we have a picture of the house and a tic sheet. The information goes into our computers here that are calibrated for local pricing guidelines and that gives us an estimate of damage. That estimate of damage is then compared to the adjuster's estimate."

Cook notes, "Mortgage servicers right now are so cost-conscious that they look at every revenue item that they can enhance their profitability. We save them money by recovering an accurate settlement."

Cook's business is not without its problems. The major impediment has been its novelty in the eyes of the hazard insurance industry, which is used to dealing directly with homeowners resolving claims.

"One of the problems we have in getting our story out is that this is a revolutionary concept. It is unconventional; therefore, people who have been in the |hazard insurance~ business for 30 years say, "You can't do that." Cook says what boggles the minds of the traditional players in the hazard insurance claims field is the logistics of having a Houston company resolving claims on behalf of a servicer in Louisville on a home in Omaha.

Another complicating factor is that many insurance carriers do not routinely deal with lienholders.

"The bulk of the claims that they have are with the borrower--the person living in the house. So, when they deal with the lienholder, say in Louisville, who has damaged property in Omaha, it is a totally different concept. We are there in the absence of the lienholder to inspect the damage," Cook said.

Superior's business strategy includes instructing its clients with regard to their duties.

"Part of our job is to educate the insured as to how they have to be responsible for their foreclosed properties. I routinely go to the mortgage companies to conduct seminars," Cook says.

Superior also offers policy interpretation to mortgage servicers. Cook explains that, "if the lienholder fails to do what he or she is legally responsible for, it may make that policy null and void. But if the lienholder does what the policy calls for, and has a valid policy at the time of the loss, we expect the claim to get paid. The lenders often do not have the expertise in policy requirements, nor do they have the network of people to verify the accuracy of the insurance company's adjustments."

Cook's advice to lienholders who find themselves involved with mortgaged properties in a foreclosure procedure includes the following:

* Keep vacant properties secured.

* Do not foreclose on damaged properties on which there is a claim for loss pending with a homeowner's carrier. Foreclosure in some states results in the loss of the right to recover.

* Cancel policies with homeowner's carriers upon detection of vacancy and request unearned premiums. Homeowner's carriers do not cover vandalism and other perils that may occur after extended vacancy.

* Always request unearned premiums back from insurance carriers upon cancellation of coverage.

* Winterize properties immediately upon vacancy.

* Continue minimal electricity to properties in cold areas to keep plumbing from freezing.

Cook has developed a straightforward, common sense approach to dealing with insurance carriers.

After an inspection has been completed and a loss detected, the lending institution notifies Superior Home Services of the location, nature of the loss, insurance coverage in place, the name of the insurance carrier, the date of loss, loan status and the type of loan. At that time, the servicer notifies the insurance company that Superior Homes Services is the contact for the adjuster assigned to the loss.

After notice of the loss has been given to the carrier by the lender, the first determination of the carrier is coverage. Once coverage is established, Superior's representatives will inspect and evaluate the site of the damage. This evaluation is subsequently compared with the insurance adjuster's evaluation or estimate.

"A copy of the adjuster's estimate is sent to our office so we can review it. We review it and compare it with estimates our field people have written. If there is a disagreement, we will support our position against the adjuster with the facts we have discovered in the field. It is very important to understand that we do not adjust losses. We verify losses," Cook continued.

"We verify the accuracy of the insurance adjuster's estimate. In 75 percent of the cases, the estimate of the Superior representative will correspond with the insurance adjuster's estimate. In the other 25 percent of cases, a negotiation process is established which will normally conclude in a settlement. If no agreement can be reached on the damages, then an arbitration procedure is initiated," he added.

Superior Home Vice President Royce Landua oversees the day-to-day operation of the business. Though seldom used, Landua believes the arbitration procedure is effective.

"The alternative at that point is for the insured to request what is called an appraisal. Very briefly, what that amounts to is the insured gets an adjuster, not us, and the insurance company gets an independent adjuster, and those two independent adjusters select a third independent adjuster called an umpire. The two adjusters present their side and the umpire makes a ruling and that's the bottom line," Landua explains.

"In the thousands of claims we have verified over the years, only one of the claims has been taken to arbitration and we won that one," Cook boasted. In that case, Cook said, the insurance company was offering $30,000 to settle the claim and Superior said there was $65,000 in damages. As a result of the arbitration, the $65,000 figure was upheld to repair fire damage to the property.

Cook says that damage from vandalism is the most common thing his firm encounters. But he says water damage also is also fairly prevalent. Superior Home Services is still working on some insurance claims arising out of damage dished out by Hurricane Hugo. Cook says that gives an indication of how long this process can take to resolve even when you know what you are doing.

After a settlement has been reached, the settlement proceeds are sent to the lending institution.

To this point, there is no charge for Superior's services. Superior's incentive for performing the service of verifying the claim is to receive the contract for the repairs to the insured property.

"After the lienholder gets its money, what do they do with it? They come to us and allow us to repair the property using our subcontractors all over the United States. We are the general contractor that repairs the property. Now, why is repairing the property important? |If it's a property that carried an FHA loan, for example,~ you do not want to convey it to HUD in a damaged state. You want it to be in what they call conveyance condition so that the HUD claim gets paid," Cook explained. More than 75 percent of the cases Cook's company deals with also involve FHA claims.

"We are actually talking about two separate claims. There is a claim for the hazard insurance, which deals with the physical loss to the property itself. When the property is foreclosed and the mortgage company prepares to convey it to HUD, they actually again file a claim with HUD for reimbursement of their unpaid principal balance, outstanding interest and a variety of other charges. Then HUD looks at that claim and says yes, we are going to pay your claim, or no, we are reducing your claim because you are conveying a damaged property to us," Landau explained.

"We have been involved in more than $10 million worth of claims that lienholders have gotten from HUD. That figure could double in the next two years with our new clients." Cook says his company recently started handling some business for Prudential Home Mortgage, based in Springfield, Illinois and for Fleet Real Estate Funding Corp., Columbia, South Carolina.

Cook's comments about the uniqueness of the services his company offers are supported by satisfied clients.

Vicki Gilhooly, an assistant vice president with Mellon Mortgage Company, in Houston, was in a difficult situation, with a two-year backlog of unsettled claims on Mellon's books. She contacted Superior Home Services and before long, Superior had resolved all the claims.

"Basically what happened was that we hired them to clean up a backlog of unresolved losses that we had allowed get piled up. We probably had two years' worth of unresolved losses because we couldn't talk the adjuster's language or the insurance company's language and we weren't able to negotiate the proper settlements with them," Gilhooly said.

"They were recommended to me by someone at Transworld Mortgage who |worked~ in the foreclosure department. I asked them to send their resume and a brief history of what they could do for us. It sounded pretty good, so we asked them to come in and we gave them some 'test' cases. We said, 'if you can do something with these, we'll certainly think about using you.' Not only did they do something, but they actually got settlement on one that was two years old and we actually got it conveyed to HUD. It was rather exciting," Gilhooly said.

"They did a really good job. We were very pleased. I think it's a very valuable service and I don't know any other company that does what they do to the extent that they do it," Gilhooly added.

Donna Bailey, vice president in charge of escrow customer service for First Gibraltar Mortgage Banking Group, in Houston, recognized the value of the service performed by Superior Home Services from the start.

"They told us what service they would offer and it was one of those too good to be true type of deals. It wasn't going to cost us anything to try it, so we did," Bailey said.

"Our attitude in the past had been that whatever money we got from the insurance company we just accepted without negotiating. We really didn't know what condition the property was in, so we didn't have anything to argue about. They weren't paying us enough for the repairs and usually we didn't even get the repairs done. We would just wait until after we foreclosed the property and then get the repairs done," Bailey recalled.

"Because of the service that |Superior~ provides, it can negotiate with the insurance company and get the best deal to get the property adequately repaired. That way, when we foreclose, we have a property that is already repaired and is ready to go on the market. It has really speeded up the process," Bailey explained.

In addition to saving First Gibraltar Mortgage Banking Group money, Bailey believes Superior Home Services has made her firm less vulnerable to unscrupulous contractors.

"It has saved us time and money because our personnel do not have to deal with the insurance claim. This is an area where there is a real opportunity for somebody to put the screws to you. We realize that contractors have to make a profit too, but we don't want them to take advantage of us. We have been very pleased with Superior's services and what they have done for us in this area," Bailey added.

Linda Jorgensen, a post-foreclosure specialist with Chase Home Mortgage Corporation, Tampa, calls upon Superior Home Services to handle the most serious insurance claims.

"When we have a property that is seriously damaged, we get them involved. They work with the insurance company and collect the money that's owed us. Then they repair the property. Once we contact Superior, they take care of everything. It takes the work away from us. Superior continues to handle the work until it completed, then we step back in and convey the property," Jorgensen said.

Jorgensen agrees with Donna Bailey that Superior's negotiating skills are a definite benefit to its clients.

"Before we had Superior, it was just a lot of work for us. We would get the runaround from insurance adjusters. They would want to send you here and there and they would want you to do this and that. We would have to try to meet the adjusters at the property but someone wouldn't show up. It was just a problem. That's what is great about Superior, they take care of all that and know how to handle it. They just take it and roll with it, once we give it to them," Jorgensen said.

"Also, they're better at it than we were because of the knowledge they have and the people they have working the various files. They know better than we do, when an adjuster is trying to rip us off. Superior is there to fight the insurance company and a high percentage of the time it works out," Jorgensen concluded.

Ray Smith, in the bankruptcy department of NationsBanc Mortgage Corporation, Louisville, credits Superior Home Services with taking much of the worry out of his job.

"When I have an insurance loss and I turn it over to them, I don't have to worry anymore, because I know I'm going to get what I've got coming to me, plus some. It takes all the phone calling out of my job.

"They do the phone calling for me and I don't have to call them for updates. They call me. I appreciate that more than anything," Smith said.

"One example of what they have done for me involves a case where I had some fire-damaged property. The insurance company was not going to give us anything for the smoke damage. Then Superior stepped in and fought them until we got everything that we could possibly get to repair the property, including recovery for smoke damage. They save us money and they ensure that we receive every bit of the claim we should receive," Smith added.

Cook expects more good things to happen for his firm in the coming years and a continuation of the upward climb in sales volume.

"I am very optimistic. We are improving our service every day and learning more about our business every day," he said.

If the reports of current clients are any indication, Superior Home Services can expect to continue to thrive in its niche in the industry.

David Knight is a lawyer with Livingston & Markle, a Houston law firm. He specializes in insurance defense and has written for numerous publications.
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Title Annotation:Superior Home Services Inc. settles insurance losses
Author:Knight, David
Publication:Mortgage Banking
Article Type:Company Profile
Date:Aug 1, 1992
Words:3708
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